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UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, D.C.
    20549
  Form 10-K
  ANNUAL REPORT PURSUANT TO
    SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934
  For the
    fiscal year ended December 31, 2009
  Commission file number
    000-28539
  DRI CORPORATION
 (Exact name of Registrant as
    specified in its Charter)
  North Carolina(State or other jurisdiction
    of
    incorporation or organization)

56-1362926(I.R.S. Employer
    Identification Number)   13760
    Noel Road, Suite 830
    Dallas, Texas 75240 (Address
    of principal executive offices, Zip Code)
  Registrants telephone number, including area code:
 (214) 378-8992
  Securities registered pursuant to Section 12(b) of the
    Act:
  Common Stock, $.10 Par Value

The NASDAQ Capital
    Market®(Title of Each Class)

(Name of Each Exchange on Which Registered)   Securities registered pursuant to Section 12(g) of the
    Act:
 None
  o þ
  o þ
  þ o
  Regulation S-T o o
  Regulation S-K Form 10-K Form 10-K. o þ
  Rule 12b-2
  Large accelerated
    filer o

Accelerated
    filer o

Non-accelerated
    filer o

Smaller Reporting
    Company þ(Do not check if a smaller
    reporting company)   Rule 12b-2 o þ
      Common Stock, par value $.10 per share

11,761,763(Class of Common Stock)

Number of Shares   DOCUMENTS
    INCORPORATED BY REFERENCE:




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FORWARD-LOOKING
    STATEMENTS
      
    Statements regarding our ability to meet our capital
    requirements;
    Statements regarding our ability to meet and maintain our
    existing debt obligations, including obligations to make
    payments under such debt instruments;
    Statements regarding our future cash flow position;
    Statements regarding our ability to obtain lender financing
    sufficient to meet our working capital requirements;
    Statements about our efforts to manage and effect certain cost
    reductions;
    Statements regarding the timing or amount of future revenues;
    Statements regarding product sales in future periods;
    Statements regarding the effectiveness of any of
    managements strategic objectives or initiatives or the
    implications thereof on our shareholders, creditors, or other
    constituencies;
    Statements regarding expected results;
    Statements regarding current trends and indicators;
    Statements regarding our ability to comply with Section 404
    of the Sarbanes-Oxley Act of 2002;
    Statements regarding recent legislative action affecting the
    transportation
    and/or
    security industry, including, without limitation, the Safe,
    Accountable, Flexible, Efficient, Transportation Equity
    Act  A Legacy for Users, and any successor
    legislation, and the American Recovery and Reinvestment Act of
    2009 and their impact on the Companys results of
    operations;
    Statements regarding changes in federal or state funding for
    transportation
    and/or
    security-related funding;
    Statements regarding current conditions in the global capital
    markets and the global economy and their impact on the
    Companys results of operation;
    Statements regarding possible growth through acquisitions;
    Statements regarding future sources of capital to fund such
    growth, including sources of additional equity financing;
    Statements regarding anticipated advancements in technology
    related to our products and services;
    Statements regarding future product and service offerings;
    Statements regarding the success of product and service
    introductions;
    Statements regarding the ability to include additional security
    features to existing products and services;
    Statements regarding the potential positive effect such
    additional security features may have on revenues; 2




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
    Statements regarding the expected contribution of sales of new
    and modified security related products to our profitability;
    Statements regarding future events or expectations including the
    expected timing of order deliveries;
    Statements regarding the expected customer acceptance of
    products;
    Statements regarding potential benefits our security features
    may have for our customers;
    Statements regarding the success of special alliances with
    various product partners;
    Statements regarding the availability of alternate suppliers of
    the component parts required to manufacture our products;
    Statements regarding our intellectual property rights and our
    efforts to protect and defend such rights; and
    Statements that contain words like believe,
    anticipate, expect and similar
    expressions that are used to identify forward-looking statements.    
    Risks that we may not be able to meet our capital requirements;
    Risks that we may not be able to meet and maintain our debt
    obligations, including obligations to make payments under such
    debt instruments;
    Risks regarding our future cash flow position;
    Risks that we may be unable to obtain lender financing
    sufficient to meet our working capital requirements;
    Risks that we may not be able to effect desired and planned
    reductions in certain costs;
    Risks that managements strategic objectives or initiatives
    may not be effective;
    Risks that assumptions behind future revenue timing or amounts
    may not prove accurate over time;
    Risks that current trends and indicators may not be indicative
    of future results;
    Risks that we may lose customers or that customer demand for our
    products and services may decline;
    Risks that there will be reductions in federal
    and/or state
    funding for the transportation
    and/or
    security industry;
    Risks that current legislative action affecting the
    transportation
    and/or
    security industry may not have a favorable impact on the
    Companys results of operations;
    Risks that we may be unable to grow through acquisitions;
    Risks that we may be unable to secure additional sources of
    capital to fund growth, including the inability to secure
    additional equity or lender financing;
    Risks that future technological advances may not occur when
    anticipated or that future technological advances will make our
    current product and service offerings obsolete;
    Risks that potential benefits our security products may have for
    our customers do not materialize;
    Risks that we will be unable to meet expected timing of order
    deliveries;
    Risks that product and service offerings may not be accepted by
    our customers;
    Risks that product and service introductions may not produce
    desired revenue results; 3




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
    Risks that we may be unable to create meaningful security
    product features in either new or existing products;
    Risks regarding the uncertainties surrounding our anticipated
    success of special alliances with various product partners;
    Risks that we may be unable to address and remediate any
    deficiencies in our internal controls over financial reporting
    and/or our
    disclosure controls;
    Risks that insufficient internal controls over financial
    reporting may cause us to fail to meet our reporting
    obligations, result in material misstatements in our financial
    statements, and negatively affect investor confidence;
    Risks that our efforts to comply with Section 404 of the
    Sarbanes-Oxley Act of 2002 could fail to be successful;
    Risks that we may be unable to obtain alternate suppliers of our
    component parts if our current suppliers are no longer available
    or cannot meet our future needs for such parts; and
    Risks that our efforts to protect and defend our intellectual
    property rights will not be sufficient.      WHERE YOU
    MAY FIND ADDITIONAL INFORMATION
  www.digrec.com Form 10-K, Form 10-Q, Form 8-K,
  20549-0102. 1-800-SEC-0330. (http://www.sec.gov)
 4




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##### 



INDEX
   
 Page No.PART IItem 1.


Business


6Item 1A.


Risk Factors


16Item 1B.


Unresolved Staff Comment


22Item 2.


Properties


22Item 3.


Legal Proceedings


23Item 4.


(Removed and Reserved)


23PART IIItem 5.


Market for the Registrants Common Equity,
    Related Shareholder Matters, and Issuer Purchases of Equity
    Securities


23Item 7.


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


24Item 8.


Financial Statements and Supplementary Data


43Item 9.


Changes in and Disagreements With Accountants on
    Accounting and Financial Disclosure


83Item 9A(T).


Controls and Procedures


83Item 9B.


Other Information


85PART IIIItem 10.


Directors, Executive Officers and Corporate
    Governance


85Item 11.


Executive Compensation


85Item 12.


Security Ownership of Certain Beneficial Owners
    and Management and Related Shareholder Matters


85Item 13.


Certain Relationships and Related Transactions,
    and Director Independence


85Item 14.


Principal Accounting Fees and Services


85PART IVItem 15.


Exhibits


86SIGNATURES


96EX-3.1.2EX-3.10.2EX-3.10.3EX-4.8.3EX-10.37.5EX-10.39.7EX-10.49.3EX-10.64.1EX-10.68.1EX-10.69.1EX-21.1EX-23.1EX-23.2EX-31.1EX-31.2EX-32.1EX-32.2   5




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PART I  Item 1.
    Business  General
  Form 10-K, ®
    ® ® tm ® ® tm ® ®
  quarter-to-quarter year-to-year,
  U.S.
    Operations
  U.S.-based
  
    Digital Recorders, Inc. (DR), based in the Research
    Triangle Park area of North Carolina, was established in
    September 1983. DR operated as a business unit of the Company
    under the name Digital Recorders until August 2007,
    at which time it was incorporated as a wholly-owned subsidiary
    of the Company. DRs primary products include: computer
    aided dispatch Global Positioning Satellite (GPS)
    tracking; automatic vehicle location (AVL) systems;
    VacTelltm

    video surveillance security systems; automatic vehicle
    monitoring (AVM) systems; and Talking
    Bus®

    automatic voice announcement systems. Some of these products
    feature security related functionality. DRs customers
    include 6




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transit operating agencies, commercial transportation vehicle
    operators, and manufacturers of those vehicles primarily in the
    U.S. and Canada.  
    TwinVision of North America, Inc. (TVna), a
    wholly-owned subsidiary of DRI based in the Research Triangle
    Park area of North Carolina, was established by DRI in May 1996.
    TVna designs, manufactures, sells, and services electronic
    destination sign systems used on transit and transportation
    rail, bus and van vehicles. Some of these products include
    security related functionality. TVnas customers include
    transit operating agencies, commercial transportation vehicle
    operators, and manufacturers of those vehicles primarily in the
    U.S. and Canada.
    RTI, Inc., a wholly-owned subsidiary of DRI based in Dallas,
    Texas, was established in August 1994 and acquired by DRI in
    July 1998. With the acquisition of RTI, Inc., DRI also acquired
    TwinVision®

    business development and marketing capabilities, as well as an
    exclusive license to the Lite Vision Corporations display
    technology, which at the time was the primary display technology
    in use. RTI, Inc. is a marketing consulting and business
    development firm devoted to the public transit industrys
    needs, primarily those of European-based businesses. RTI, Inc.
    presently generates no revenue.  International
    Operations
    
    DRI-Europa AB, based in Göteborg, Sweden, is a wholly-owned
    subsidiary of DRI that serves as the umbrella organizational
    structure for DRIs international operations.
    Mobitec GmbH, based in Ettlingen, Germany, is a wholly-owned
    subsidiary of DRI-Europa AB. Mobitec GmbH primarily sells and
    services
    Mobitec®

    products. Mobitec GmbHs customers include transit
    operating agencies, commercial transportation vehicle operators,
    and the manufacturers of those vehicles in select markets in
    Europe, Asia-Pacific, and the Middle-East.
    Mobitec AB is a wholly-owned subsidiary of DRI-Europa AB based
    in Göteborg, Sweden. Based upon our internal market share
    calculations, we believe Mobitec AB holds the largest market
    share of electronic destination sign systems in the Nordic
    markets. In addition to serving the Nordic markets, Mobitec AB
    also has sales and service offices in Germany, operated by
    Mobitec GmbH, and Australia, operated by its wholly-owned
    subsidiary Mobitec Pty Ltd. Mobitec ABs customers include
    transit operating agencies, commercial transportation vehicle
    operators, and the manufacturers of those vehicles in the Nordic
    and other select European markets. Mobitec AB also owns 51% of
    the Castmaster Mobitec India Private Limited joint venture
    located in India and 100% of Mobitec Empreendimientos e
    Participações Ltda. located in Brazil.
    Mobitec Pty Ltd (Mobitec Pty) is a wholly-owned
    subsidiary of Mobitec AB based in Peakhurst NSW, Australia.
    Mobitec Pty Ltd imports and sells complete
    Mobitec®

    electronic destination sign systems primarily within the
    Australian market. Based upon our internal market share
    calculations, we believe Mobitec Pty Ltd holds a majority market
    share in the Australian market.
    Mobitec Empreendimientos e Participações Ltda.
    (Mobitec EP), based in São Paulo, Brazil, was
    established in May 2009 as a holding company to facilitate the
    July 2009 acquisition of the remaining 50% ownership interest of
    Mobitec Brazil Ltda not previously owned by the Company. Mobitec
    EP was originally established as a wholly-owned subsidiary of
    Mobitec AB. To meet Brazilian legal requirements of at least two
    shareholders in a limited liability company, in June 2009, 1% of
    the ownership interest of Mobitec EP was transferred from
    Mobitec AB to Mobitec GmbH. Mobitec EP presently generates no
    revenue.
    Mobitec Brazil Ltda. (Mobitec Brazil), based in
    Caxias do Sul, Brazil, is engaged in manufacturing, selling and
    servicing electronic destination sign systems to OEMs and
    some end-user customers and operating authority customers,
    primarily in South America. Its products are also shipped
    throughout 7




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Mexico, the Caribbean, and the Middle East. Through May 2009,
    Mobitec Brazil was a 50%-owned subsidiary of Mobitec AB. In June
    2009, to facilitate the acquisition of the remaining 50%
    ownership interest of Mobitec Brazil not previously owned by the
    Company, Mobitec AB transferred its 50% ownership interest in
    Mobitec Brazil to Mobitec EP. In July 2009, Mobitec EP acquired
    the remaining 50% interest of Mobitec Brazil that was not
    previously owned by the Company. As a result of the acquisition,
    which is more fully described in Note 2 to the accompanying
    consolidated financial statements, Mobitec Brazil became a
    wholly-owned subsidiary of Mobitec EP. To meet Brazilian legal
    requirements of at least two shareholders in a limited liability
    company, on January 1, 2010, 1% of the ownership interest
    of Mobitec Brazil was transferred from Mobitec EP to Mobitec
    GmbH.  
    Castmaster Mobitec India Private Limited (Castmaster
    Mobitec), which began operations in the fourth quarter of
    2007, is a joint venture between Mobitec AB and Castmaster
    Enterprises Private Limited, a company incorporated in India.
    Mobitec AB owns 51% of Castmaster Mobitec, which is based in
    Delhi, India. Castmaster Mobitec has exclusive rights to
    produce, sell and service
    Mobitec®

    destination sign systems in India and selected markets in that
    region.
    Mobitec Far East Pte. Ltd. (Mobitec Far East), based
    in Singapore, was established in October 2009 as a wholly-owned
    subsidiary of DRI to facilitate sales and services of
    Mobitec®

    products in select Asia-Pacific markets, primarily Singapore.
    Mobitec Far East currently has no operations and currently
    generates no revenue.  Divestiture
    of Digital Audio Corporation
    Mobitec
    Brazil Acquisition
    Industry
    and Market Overview
   8




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marked-up
     9




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region-to-region period-to-period
  ®
  ®
 10




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tm ®
    Key
    Competitors
      Products
    and Product Design
    
    DR600tm,

    a vehicle logic unit for buses that provides automatic vehicle
    monitoring, automatic vehicle location, and automatic vehicle
    schedule adherence communication systems and programs, generally
    including GPS triggering of product features;
    GPS tracking of vehicles;
    Talking
    Bus®

    next stop automatic voice announcement system and next stop
    internal signage;
    A Software Suite that provides modules for customized transit
    applications including computer-aided dispatch, automatic
    vehicle location, vehicle monitoring, wireless data exchange,
    and Central Recording Station; 11




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
    Transit Arrival Signs and software;
    Airport Shuttle Automatic Vehicle Location products and Arrival
    Signs;
    Integration of and with vehicle
    sub-systems
    including destination signs, fare collection, automatic
    passenger counters, engine controllers, transmission,
    multiplexer, etc.;
    TwinVision®

    all-LED (light-emitting diode) electronic destination sign
    systems;
    TwinVision®

    Chromatic Series family of color electronic destination sign
    systems;
    TwinVision®

    Smart Series family of electronic destination sign systems;
    ELYSÉ®

    and Central Recording Station software;
    Mobitec®

    electronic destination sign systems and electronic information
    display systems; and
    VacTelltm

    video surveillance, recording and actionable intelligence
    products.    ® ®
  ® ® ® ® ® state-of-the-art
  ®
 12




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®
  Marketing
    and Sales Organization
    request-for-quote
  Customers
    Seasonality
    and Fluctuation in Results
  quarter-to-quarter year-to-year
   13




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quarter-to-quarter, period-over-period year-to-year.
  quarter-to-quarter year-to-year.
  Backlog
    Research
    and Development
    ® tm ® ® state-of-the-art
  985-20,
 14




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stepped-up
  period-to-period
  Manufacturing
    Operations
    Buy-America
      Customer
    Service
    Proprietary
    Rights
  ® ® ® ® ® ® ® tm
 15




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Employees
    Item 1A.
    Risk
    Factors    Risks
    Related to Indebtedness, Financial Condition and Results of
    Operations
  Our substantial debt could adversely affect our financial
    position, operations and ability to grow. 180-day
  
    we could be required to dedicate a substantial portion of our
    cash flow from operations to payments on our debt, which would
    reduce amounts available for working capital, capital
    expenditures, research and development and other general
    corporate purposes;
    our flexibility in planning for, or reacting to, changes in our
    business and the industries in which we operate could be limited;
    we may be more vulnerable to general adverse economic and
    industry conditions;
    we may be at a disadvantage compared to our competitors that may
    have less debt than we do;
    it may be more difficult for us to obtain additional financing
    that may be necessary in connection with our business;
    it may be more difficult for us to implement our business and
    growth strategies;
    we may have to pay higher interest rates on future
    borrowings; and
    we may not comply with financial loan covenants, which could
    require us to incur additional expenses to obtain waivers from
    lenders or could restrict the availability of financing we can
    obtain to support our working capital requirements.  Some of our debt bears interest at variable
    rates.
 16




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Future cash requirements or restrictions on cash could
    adversely affect our financial position, and an event of default
    under our outstanding debt instruments could impair our ability
    to conduct business operations.
  
    triggering of certain payment obligations, or acceleration of
    payment obligations, under our revolving credit facilities and
    loan agreements;
    costs associated with unanticipated litigation relating to our
    intellectual property or other matters;
    taxes due upon the transfer of cash held in foreign
    locations; and
    taxes assessed by local authorities where we conduct business.      Our operating results may continue to
    fluctuate.
  Risks
    Related to Our Operations and Product Development
  A significant portion of our sales is derived from sales to a
    small number of customers. If we are not able to obtain new
    customers or repeat business from existing customers, our
    business could be seriously harmed.
 17




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We depend on third parties to supply components we need to
    produce our products.
    Many of our customers rely, to some extent, on government
    funding, which subjects us to risks associated with governmental
    budgeting and authorization processes.
    We must continually improve our technology to remain
    competitive.
  We operate in several international locations and, in India,
    with less than full ownership control.
 18




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We cannot assure you that any new products we develop will be
    accepted by customers.
  Risks
    Related to Our International Operations
  There are numerous risks associated with international
    operations, which represent a significant part of our
    business.
  Complying with foreign tax laws can be complicated, and we
    may incur unexpected tax obligations in some
    jurisdictions.
  Risks
    Related to Internal Controls
  Required reporting on internal control over financial
    reporting.
  Risks
    Related to Intellectual Property
  We may not be able to defend successfully against claims of
    infringement against the intellectual property rights of others,
    and such defense could be costly.
 19




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Risks
    Related to Our Equity Securities
  The public market for our Common Stock may be volatile,
    especially since market prices for technology stocks often have
    been unrelated to operating performance.
  
    Actual or anticipated variations in our quarterly operating
    results;
    Historical and anticipated operating results;
    Announcements of new product or service offerings;
    Technological innovations;
    Competitive developments in the public transit industry;
    Changes in financial estimates by securities analysts;
    Conditions and trends in the public transit industry;
    Funding initiatives and other legislative developments affecting
    the transit industry;
    Adoption of new accounting standards affecting the technology
    industry or the public transit industry; and
    General market and economic conditions and other factors.    Our preferred stock has preferential rights over our Common
    Stock.
  Risks
    Related to Anti-Takeover Provisions
  Our articles of incorporation, bylaws and North Carolina law
    contain provisions that may make takeovers more difficult or
    limit the price third parties are willing to pay for our
    stock.
 20




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Provisions of our bylaws limit the ability of shareholders to
    call special meetings of shareholders and therefore could
    discourage, delay or prevent a merger, acquisition or other
    change in control of our company.
  Risks
    Associated with Potential Growth
  We may not be able to obtain the financing we will need to
    implement our operating strategy.
 21




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There are many risks associated with potential
    acquisitions.
  
    It may be difficult to assimilate the operations and personnel
    of an acquired business into our own business;
    Management information and accounting systems of an acquired
    business must be integrated into our current systems;
    Our management must devote its attention to assimilating the
    acquired business, which diverts attention from other business
    concerns;
    We may enter markets in which we have limited prior
    experience; and
    We may lose key employees of an acquired business.  Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties    MonthlyCity and State

Country

Area

Use

Rent

ExpirationDurham, NC

USA


49,864
sf

Office, service and repair, warehouse and assembly

$
27,685


April 2011Dallas, TX

USA


3,466
sf

Office(a)

$
5,632


November 2013Sydney

Australia


1,055
sm

Office, service and repair, warehouse

$
5,595


September 2012Caxias do Sul

Brazil


880
sm

Office, service and repair, warehouse and assembly

$
4,325


June 2014Herrljunga

Sweden


3,251
sm

Office, service and repair, warehouse and assembly (b),(c)

$
16,660


March 2020Ettlingen

Germany


470
sm

Office, service and repair, warehouse (c)

$
9,460


December 2017New Delhi

India


920
sy

Office, service and repair, warehouse and assembly

$
7,487


June 2014     (a)
    
    Used by administration  U.S. Corporate(b)
    
    Used by administration  international(c)
    
    Area, Use, Monthly Rent and Expiration include space expansions
    to be completed in 2010   22




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Item 3.
    Legal
    Proceedings    Item 4.
    (Removed
    and Reserved)  PART II  Item 5.
    Market
    for the Registrants Common Equity, Related Shareholder
    Matters, and Issuer Purchases of Equity Securities  ®
  High

LowYear Ended December 31, 2008First Quarter

$
2.50


$
1.82Second Quarter


3.09



2.12Third Quarter


2.82



2.10Fourth Quarter


2.06



0.80Year Ended December 31, 2009First Quarter

$
1.19


$
0.72Second Quarter


1.81



0.89Third Quarter


2.55



1.24Fourth Quarter


2.62



1.30       Equity
    Compensation Plan Information
    Number of SecuritiesRemaining Available forNumber of Securities to

Weighted-Average

Future Issuance Underbe Issued Upon Exercise

Exercise Price of

Equity Compensation Plansof Outstanding Options,

Outstanding Options,

(Excluding SecuritiesWarrants and Rights

Warrants and Rights

Reflected in Column a)Plan Category

(a)

(b)

(c)1993 Incentive Stock Option Plan


118,000


$
2.32



None2003 Stock Option Plan


1,361,870


$
2.36



172,183Total


1,479,870


$
2.36



172,183     *
    
    All options issued under the 1993 Incentive Stock Option Plan
    and the 2003 Stock Option Plan have been approved by the
    Companys shareholders. 23




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Issuance
    of Unregistered Securities
      Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations    Business 
    General
    quarter-to-quarter year-to-year
     24




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period-to-period, period-over-period,
  Results
    of Operations
      Year Ended December 31,2009


2008


2007Net sales


100.0
%


100.0
%


100.0
%Cost of sales


69.9



66.1



67.9Gross profit


30.1



33.9



32.1Operating expenses:Selling, general and administrative


24.8



26.9



26.3Research and development


0.6



1.4



2.0Total operating expenses


25.4



28.3



28.3Operating income


4.7



5.6



3.8Total other income and expense


(1.3
)


(1.0
)


(1.5
)Income from continuing operations before income tax expense


3.4



4.6



2.3Income tax expense


(1.0
)


(1.6
)


(0.5
)Income from continuing operations, net of tax


2.4



3.0



1.8Loss from discontinued operations










(0.4
)Net income


2.4



3.0



1.4Less: Net income attributable to noncontrolling interests, net
    of tax


(0.2
)


(0.9
)


(0.3
)Net income attributable to DRI Corporation


2.2
%


2.1
%


1.1
%   Comparison
    of Results for the Years Ended December 31, 2009 and
    2008
  Net
    Sales and Gross Profit
     25




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26




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period-to-period,
  Selling,
    General and Administrative
  718-20
  Research
    and Development
  985-20,
  Operating
    Income (Loss)
   27




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Other
    Income, Foreign Currency Gain (Loss) and Interest
    Expense
    Income
    Tax Expense
    Net
    Income (Loss) Applicable to Common Shareholders
    Comparison
    of Results for the Years Ended December 31, 2008 and
    2007
  Net
    Sales and Gross Profit
    tm ®
   28




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Selling,
    General and Administrative
  718-20
 29




---



##### Table of Contents



Research
    and Development
  985-20,
  Operating
    Income (Loss)
    Other
    Income, Foreign Currency Gain (Loss) and Interest
    Expense
    Income
    Tax Expense
   30




---



##### Table of Contents



Discontinued
    Operations
    Net
    Income (Loss) Applicable to Common Shareholders
    Liquidity
    and Capital Resources
  Cash
    Flows
  470-10-45-5,
  build-up
 31




---



##### Table of Contents



Significant
    Financing Arrangements
    
    DR and TVna (collectively, the Borrowers) have in
    place a three-year, asset-based lending agreement (the PNC
    Agreement) with PNC Bank, National Association
    (PNC) which terminates June 30, 2011. DRI has
    agreed to guarantee the obligations of the Borrowers under the
    PNC Agreement. The PNC Agreement provides up to
    $8.0 million in borrowings under a revolving credit
    facility. Borrowing availability under the PNC Agreement is
    based upon an advance rate equal to 85% of eligible domestic
    accounts receivable of the Borrowers plus 75% of eligible
    foreign receivables of the Borrowers, limited to the lesser of
    $2.5 million or the amount of coverage under acceptable
    credit insurance policies of the Borrowers, as determined by PNC
    in its reasonable discretion, plus 85% of the appraised net
    orderly liquidation value of inventory of the Borrowers, limited
    to $750,000. At December 31, 2009, the outstanding
    principal balance on the revolving credit facility was
    approximately $3.8 million and remaining borrowing
    availability under the revolving credit facility was
    approximately $1.5 million.
    Mobitec AB has credit facilities in place under agreements with
    Svenska Handelsbanken AB (Handelsbanken) pursuant to
    which it may currently borrow up to a maximum of
    27.5 million krona, or approximately US$3.8 million
    (based on exchange rates at December 31, 2009) through
    September 30, 2010, on which date, under terms of the
    credit agreements, the maximum borrowing capacity will be
    reduced by 3.5 million krona, or approximately US$488,000
    (based on exchange rates at December 31, 2009). At
    December 31, 2009, borrowings due and outstanding under
    these credit facilities totaled 14.7 million krona
    (approximately US$2.0 million, based on exchange rates at
    December 31, 2009). Additional borrowing availability under
    these agreements at December 31, 2009 amounted to
    approximately US$1.8 million. These credit agreements renew
    annually on a calendar-year basis.
    Mobitec GmbH has a credit facility in place under an agreement
    with Handelsbanken pursuant to which it may currently borrow up
    to a maximum of approximately 1.4 million Euro
    (approximately US$2.0 million, based on exchange rates at
    December 31, 2009) through April 30, 2010, on
    which date, under terms of the credit agreement, the maximum
    borrowing capacity will be reduced by 500,000 Euro, or
    approximately US$717,000 (based on exchange rates at
    December 31, 2009). At December 31, 2009, borrowings
    due and outstanding under this credit facility totaled 954,000
    Euro (approximately US$1.4 million, based on exchange rates
    at December 31, 2009). Additional borrowing availability
    under this credit facility at December 31, 2009 amounted to
    approximately US$640,000. The agreement under which this credit
    facility is extended has an open-ended term. 32




---



##### Table of Contents




    At December 31, 2009, pursuant to terms of a loan agreement
    (the BHC Agreement) with BHC Interim Funding III,
    L.P. (BHC), the Borrowers had an outstanding
    principal balance of $4.8 million due on a term loan (the
    Term Loan) which had an original principal balance
    of a $5.0 million. The Term Loan has a maturity date of
    June 30, 2011.
    At December 31, 2009, Mobitec AB had an outstanding
    principal balance of 1.5 million krona (approximately
    US$209,000, based on exchange rates at December 31,
    2009) due on a term loan under a credit agreement with
    Handelsbanken (the Mobitec Term Loan). The Mobitec
    Term Loan has a maturity date of September 30, 2010.
    At December 31, 2009, Mobitec AB had an outstanding
    principal balance of 3.4 million krona (approximately
    US$470,000, based on exchange rates at December 31,
    2009) due on an additional term loan under a credit
    agreement with Handelsbanken (the Mobitec Loan). The
    Mobitec Loan is payable in quarterly principal installments of
    375,000 krona (approximately US$52,000, based on exchange rates
    at December 31, 2009) and matures June 30, 2011.
    At December 31, 2009, Mobitec Brazil has outstanding
    borrowings from two banks in Brazil of approximately 235,000
    Brazilian Real (BRL) (approximately US$135,000,
    based on exchange rates at December 31, 2009). The
    borrowings are secured by accounts receivable on certain export
    sales by Mobitec Brazil Ltda and have a term of 180 days.
    At December 31, 2009, Mobitec Brazil had five loans payable
    to a bank in Brazil with an aggregate outstanding principal
    balance of approximately 206,000 BRL (approximately US$119,000,
    based on exchange rates as of December 31, 2009). One loan
    has a principal balance of approximately 161,000 BRL
    (approximately US$93,000, based on exchange rates as of
    December 31, 2009) and matures April 13, 2010.
    The four remaining loans have an aggregate outstanding principal
    balance of approximately 45,000 BRL (approximately US$26,000,
    based on exchange rates as of December 31, 2009) and
    have maturity dates ranging from January 17, 2010 to
    November 16, 2010.      Fiscal Quarter Ending:

EBITDA:

Leverage Ratio:March 31, 2009

$
3,000,000



5.70 to 1.0June 30, 2009

$
2,500,000



6.25 to 1.0September 30, 2009

$
4,000,000



4.55 to 1.0     
    Permit the Borrowers and DRI to make a recallable equity
    investment in Mobitec AB on or about October 1, 2009 (the
    BHC Effective Date), in an amount not to exceed the
    Contribution Amount (as defined below); 33




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##### Table of Contents




    Permit the Borrowers and DRI to make a recallable equity
    investment in Mobitec EP on or about the BHC Effective Date in
    an amount not to exceed $400,000;
    Allow the Borrowers to make dividends or distributions to DRI to
    enable DRI to pay up to the sum of (a) $150,000 plus
    (b) the result of 9.5% of the amount of Series K
    Preferred Stock issued by DRI on or prior to October 31,
    2009, in the aggregate in any fiscal year, of dividends or
    distributions with respect to DRIs preferred stock;
    Allow the Borrowers and DRI to enter into any transaction,
    capital contribution, investment and transfer which, in the
    aggregate for all such events, do not exceed $2 million
    plus the Contribution Amount; and
    Permit DRI to adopt the Certificate of Designation of, and amend
    its Organizational Documents (as defined in the BHC Agreement)
    to authorize, the Series K Preferred Stock.    
    Obtain PNCs consent for DRI to issue a new series of
    preferred stock and to be designated the Series K Senior
    Convertible Preferred Stock (the Series K Preferred
    Stock), so long as the net proceeds of such issuance are
    utilized to repay outstanding Advances (as defined in the PNC
    Agreement) and to use Advances to make a recallable equity
    investment in Mobitec AB on or after the PNC Effective Date in
    an amount not to exceed, if DRI receives gross proceeds from the
    issuance of the Series K Preferred Stock of (i) no
    more than $3.5 million, $1 million,
    (ii) $5 million, $1.5 million, and (iii) in
    excess of $3.5 million but less than $5 million,
    $1 million plus the lesser of (a) $500,000 and
    (b) an amount determined by multiplying (x) the
    quotient (expressed as a percentage) of (1) the amount by
    which gross proceeds from the issuance of Series K
    Preferred Stock exceeds $3.5 million, divided by
    (2) $1.5 million, by (y) $500,000 (the foregoing
    clauses (i) through (iii) collectively referred to as
    the Contribution Amount); provided, however, that
    (x) the amount of the proceeds applied to repay Advances
    must be equal to or greater than the Contribution Amount and
    (y) the amount of the proceeds as applied to prepay the
    Term Loan may not exceed the Prepayment Amount, as defined
    below; and
    Obtain PNCs consent to the prepayment of the Term Loan
    with a portion of the proceeds of the Series K Preferred
    Stock in an amount not to exceed the Prepayment Amount;      
  
    Permits the Borrowers and DRI to enter into any transaction,
    capital contribution, investment and transfers which, in the
    aggregate for all such events, do not exceed $2 million
    plus the Contribution Amount; and
    Permits DRI to adopt the Certificate of Designation of, and
    amend its Articles of Incorporation to authorize, the
    Series K Preferred Stock.   34




---



##### Table of Contents



Fiscal Quarter Ending:

Leverage Ratio:September 30, 2009


5.25 to 1.0December 31, 2009


5.00 to 1.0March 31, 2010


6.75 to 1.0June 30, 2010


8.25 to 1.0September 30, 2010


7.00 to 1.0December 31, 2010 and each fiscal quarter ending thereafter


5.50 to 1.0     Series K
    Preferred Stock
    Management
    Conclusion
     35




---



##### Table of Contents



Critical
    Accounting Policies and Estimates
    
    Allowance for doubtful accounts;
    Inventory valuation and warranty reserve;
    Intangible assets and goodwill;
    Income taxes, including deferred tax assets;
    Revenue recognition; and
    Stock-based compensation  Allowance
    for Doubtful Accounts
    Inventory
    Valuation and Warranty Reserve
  end-of-life
  Intangible
    Assets and Goodwill
   36




---



##### Table of Contents



Income
    Taxes
      740-10-25.
  Revenue
    Recognition
   37




---



##### Table of Contents



Multiple element arrangements in 2007 and 2008  set-up and/or 605-25, Topic 605-25 set-up 605-25, set-up and/or set-up/data set-up/data
  985-605,
  Multiple element arrangements in 2009  2009-13, 605-25 2009-13 2009-13 2009-13
 38




---



##### Table of Contents



2009-13 2009-13, set-up/data set-up/data
  2009-14, 985-605 2009-14, 605-25 2009-13. 605-25 985-605 2009-14 2009-14 2009-14
  2009-14 605-25, 2009-13. 605-25, 2009-13, 985-605, 985-605,
  2009-13 2009-14
    Stock-based
    Compensation
  718-20, 718-20,
 39




---



##### Table of Contents



Off-Balance
    Sheet Arrangements
    Recent
    Accounting Pronouncements
    820-10-15, No. FAS 157-2, 820-10, 820-10 820-10
  805-10, 805-10 805-10 805-10 805-10 805-10
  810-10-65, 810-10-65
 40




---



##### Table of Contents



810-10-65 810-10-65 810-10-65 810-10-65
  
    The noncontrolling interests in our subsidiaries of which we
    have less than 100% ownership have been reclassified to
    shareholders equity.
    Consolidated net income (loss) has been adjusted to include the
    net income (loss) attributed to the noncontrolling interest in
    our subsidiaries of which we have less than 100% ownership.
    Consolidated comprehensive income (loss) has been adjusted to
    include the comprehensive income (loss) attributed to the
    noncontrolling interest in our subsidiaries of which we have
    less than 100% ownership.
    We have disclosed for each reporting period the amounts of
    consolidated income (loss) attributed to the Company and the
    noncontrolling interest in our subsidiaries of which we have
    less than 100% ownership. In addition, for each reporting period
    we have presented a reconciliation at the beginning and end of
    the period of the carrying amount of equity attributable to the
    Company and noncontrolling interest in our subsidiaries of which
    we have less than 100% ownership.  815-10, 815-10 815-10 815-10
  350-30-65, FAS 142-3,Determination 350-30-65 350-30-65 350-30-65 350-30-65
  815-40, No. 07-5, 815-40 815-10-15 815-40 815-40.
 41




---



##### Table of Contents



855-10, 855-10 855-10 855-10,
  Impact of
    Inflation
   42




---



##### 



Item 8.
    Financial
    Statements and Supplementary Data  DRI
    CORPORATION AND SUBSIDIARIES
    INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
   
 Section

PageReport of Independent Registered Public
    Accounting Firm  Grant Thornton LLP


44Report of Independent Registered Public
    Accounting Firm  PricewaterhouseCoopers LLP


45Consolidated Balance Sheets 
    December 31, 2009 and 2008


46Consolidated Statements of Operations 
    Years Ended December 31, 2009, 2008 and 2007


47Consolidated Statements of Shareholders
    Equity  Years Ended December 31, 2009, 2008 and
    2007


48Consolidated Statements of Cash Flows 
    Years Ended December 31, 2009, 2008 and 2007


49Notes to Consolidated Financial Statements


50   43




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm                44




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm              45




---



##### Table of Contents



DRI
    CORPORATION AND SUBSIDIARIES



CONSOLIDATED
    BALANCE SHEETS  December 31,2009


2008(In thousands, except shares and per share amounts)ASSETSCurrent AssetsCash and cash equivalents

$
1,800


$
598Trade accounts receivable, net


18,192



12,403Current portion of note receivable


86



86Stock subscription receivable


670



Other receivables


1,645



431Inventories, net


13,042



10,662Prepaids and other current assets


1,844



427Deferred tax assets, net


250



94Total current assets


37,529



24,701Property and equipment, net


5,266



3,607Long-term portion of note receivable


86



172Goodwill


9,793



9,034Intangible assets, net


728



790Other assets


890



1,157Total assets

$
54,292


$
39,461LIABILITIES AND SHAREHOLDERS EQUITYCurrent LiabilitiesLines of credit

$
7,200


$
3,743Loans payable


463



719Current portion of long-term debt


960



193Current portion of foreign tax settlement


561



386Accounts payable


10,099



5,347Accrued expenses and other current liabilities


6,459



4,359Preferred stock dividends payable


20



16Total current liabilities


25,762



14,763Long-term debt and capital leases, net


6,572



5,149Foreign tax settlement, long-term


294



528Deferred tax liabilities, net


338



137Liability for uncertain tax positions


380



300Commitments and contingencies (Notes 8, 9, 10, 19, and 20)Shareholders EquitySeries K Redeemable, Convertible Preferred Stock,
    $.10 par value, liquidation preference of $5,000 per share;
    325 shares authorized; 299 and 0 shares issued and
    outstanding at December 31, 2009, and December 31,
    2008, respectively; redeemable at the discretion of the Company
    at any time


1,341



Series E Redeemable, Nonvoting, Convertible Preferred
    Stock, $.10 par value, liquidation preference of $5,000 per
    share; 500 shares authorized; 80 shares issued and
    outstanding at December 31, 2009, and December 31,
    2008; redeemable at the discretion of the Company at any time


337



337Series G Redeemable, Convertible Preferred Stock,
    $.10 par value, liquidation preference of $5,000 per share;
    600 shares authorized; 480 and 444 shares issued and
    outstanding at December 31, 2009, and December 31,
    2008, respectively; redeemable at the discretion of the Company
    after five years from date of issuance


2,118



1,938Series H Redeemable, Convertible Preferred Stock,
    $.10 par value, liquidation preference of $5,000 per share;
    600 shares authorized; 69 and 64 shares issued and
    outstanding at December 31, 2009, and December 31,
    2008, respectively; redeemable at the discretion of the Company
    after five years from date of issuance


297



272Series J Redeemable, Convertible Preferred Stock,
    $.10 par value, liquidation preference of $5,000 per share;
    250 shares authorized; 0 and 90 shares issued and
    outstanding at December 31, 2009, and December 31,
    2008, respectively; redeemable at the discretion of the Company
    at any time






388Series AAA Redeemable, Nonvoting, Convertible Preferred
    Stock, $.10 par value, liquidation preference of $5,000 per
    share; 20,000 shares authorized; 166 shares issued and
    outstanding at December 31, 2009, and December 31,
    2008; redeemable at the discretion of the Company at any time


830



830Common stock, $.10 par value, 25,000,000 shares
    authorized; 11,746,327 and 11,466,606 shares issued and
    outstanding at December 31, 2009 and December 31,
    2008, respectively


1,175



1,147Additional paid-in capital


30,393



32,706Accumulated other comprehensive income  foreign
    currency translation


1,976



512Accumulated deficit


(18,276
)


(20,398
)Total DRI shareholders equity


20,191



17,732Noncontrolling interestsNoncontrolling interests  Mobitec Brazil Ltda.






596Noncontrolling interests  Castmaster Mobitec India
    Private Limited


755



256Total noncontrolling interests


755



852Total shareholders equity


20,946



18,584Total liabilities and shareholders equity

$
54,292


$
39,461    46




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##### Table of Contents



DRI
    CORPORATION AND SUBSIDIARIES



CONSOLIDATED
    STATEMENTS OF OPERATIONS  Year Ended December 31,2009


2008


2007(In thousands, except share and per share amounts)Net sales

$
82,285


$
70,559


$
57,932Cost of sales


57,489



46,671



39,311Gross profit


24,796



23,888



18,621Operating expensesSelling, general and administrative


20,402



19,000



15,216Research and development


552



974



1,149Total operating expenses


20,954



19,974



16,365Operating income


3,842



3,914



2,256Other income (loss)


(101
)


188



103Foreign currency gain


531



558



210Interest expense


(1,460
)


(1,433
)


(1,197
)Total other income and expense


(1,030
)


(687
)


(884
)Income from continuing operations before income tax expense


2,812



3,227



1,372Income tax expense


(836
)


(1,096
)


(291
)Income from continuing operations, net of tax


1,976



2,131



1,081Loss from discontinued operations (Note 3)










(219
)Net income


1,976



2,131



862Less: Net income attributable to noncontrolling interests, net
    of tax


(146
)


(635
)


(188
)Net income attributable to DRI Corporation


1,830



1,496



674Provision for preferred stock dividends


(319
)


(303
)


(294
)Net income applicable to common shareholders of DRI Corporation

$
1,511


$
1,193


$
380Net income (loss) per share  basicContinuing operations

$
0.13


$
0.11


$
0.06Discontinued operations

$
0.00


$
0.00


$
(0.02
)Income per share applicable to common shareholders

$
0.13


$
0.11


$
0.04Net income (loss) per share  dilutedContinuing operations

$
0.13


$
0.10


$
0.05Discontinued operations

$
0.00


$
0.00


$
(0.02
)Income per share applicable to common shareholders

$
0.13


$
0.10


$
0.03Weighted average number of common shares and common share
    equivalent outstandingBasic


11,548,403



11,333,984



10,751,220Diluted


11,715,807



11,492,473



11,146,107    47




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##### Table of Contents



DRI
    CORPORATION AND SUBSIDIARIES



CONSOLIDATED
    STATEMENTS OF SHAREHOLDERS EQUITY  DRI Shareholders EquityPreferred Stock


Common Stock








AccumulatedNumber





Number





Additional


Accum-


Other


Total DRI





Totalof Shares


Book


of Shares


Par


Paid-in


ulated


Comprehensive


Shareholders


Noncontrolling


ShareholdersIssued


Value


Issued


Value


Capital


Deficit


Income (Loss)


Equity


Interests


EquityBalance as of December 31, 2006


898


$
3,691



10,045,675


$
1,004


$
31,517


$
(22,414
)

$
3,397


$
17,195


$
234


$
17,429Issuance of common stock










648,540



65



201











266







266Issuance of Series G Preferred Stock dividend


31



155























155







155Issuance of Series H Preferred Stock dividend


5



25























25







25Issuance of Series J Preferred Stock, net of issuance costs


90



411























411







411Conversion of Series AAA Preferred Stock


(6
)


(30
)


5,454



1



29



















Conversion of Series E Preferred Stock, net of issuance
    costs


(98
)


(411
)


163,324



16



395



















Conversion of Series I Preferred Stock, net of discount


(104
)


(471
)


325,000



33



438



















Adjustment for prior period Series E Conversions






271











(271
)


















Issuance of warrants






(23
)










23



















Preferred stock dividends


















(294
)










(294
)






(294
)Stock-based compensation expense


















41











41







41Adjustment for prior year liability for uncertain tax positions






















(154
)






(154
)






(154
)Comprehensive income:Net income






















674







674



188



862Translation adjustment


























1,173



1,173







1,173Balance as of December 31, 2007


816


$
3,618



11,187,993


$
1,119


$
32,079


$
(21,894
)

$
4,570


$
19,492


$
422


$
19,914Issuance of common stock










37,553



3



83











86







86Issuance of Series G Preferred Stock dividend


34



170























170







170Issuance of Series H Preferred Stock dividend


5



25























25







25Conversion of Series AAA Preferred Stock


(6
)


(30
)


5,454



1



29



















Conversion of Series E Preferred Stock, net of issuance
    costs


(5
)


(18
)


8,333



1



17



















Conversion of Convertible Subordinated Debenture










227,273



23



227











250







250Amortization of convertible subordinated debenture beneficialconversion feature


















54











54







54Issuance of warrants


















333











333







333Preferred stock dividends


















(303
)










(303
)






(303
)Dividends paid to noncontrolling interests


































(205
)


(205
)Stock-based compensation expense


















187











187







187Comprehensive loss:Net income






















1,496







1,496



635



2,131Translation adjustment


























(4,058
)


(4,058
)






(4,058
)Balance as of December 31, 2008


844


$
3,765



11,466,606


$
1,147


$
32,706


$
(20,398
)

$
512


$
17,732


$
852


$
18,584Cumulative effect of reclassification of warrants as a result of
    a new accounting requirement


















(333
)


292







(41
)






(41
)Balance as of January 1, 2009, as adjusted


844


$
3,765



11,466,606


$
1,147


$
32,373


$
(20,106
)

$
512


$
17,691


$
852


$
18,543Issuance of common stock










80,641



8



93











101







101Issuance of Series G Preferred Stock dividend


36



180























180







180Issuance of Series H Preferred Stock dividend


5



25























25







25Issuance of Series K Preferred Stock, net of issuance costs


299



1,341























1,341







1,341Conversion of Series J Preferred Stock, net of issuance
    costs


(90
)


(388
)


199,080



20



368



















Reclassification of warrants


















207











207







207Modification of warrants


















31











31







31Preferred stock dividends


















(319
)










(319
)






(319
)Stock-based compensation expense


















347











347







347Purchase of noncontrolling interest


















(2,707
)










(2,707
)


(243
)


(2,950
)Comprehensive Income:Net income






















1,830







1,830



146



1,976Translation adjustment


























1,464



1,464







1,464Balance as of December 31, 2009


1,094


$
4,923



11,746,327


$
1,175


$
30,393


$
(18,276
)

$
1,976


$
20,191


$
755


$
20,946    48




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##### Table of Contents



DRI
    CORPORATION AND SUBSIDIARIES



CONSOLIDATED
    STATEMENTS OF CASH FLOWS Year Ended December 31,2009


2008


2007(In thousands)Cash flows from operating activitiesNet income

$
1,976


$
2,131


$
862Loss from discontinued operations










(219
)Income from continuing operations


1,976



2,131



1,081Adjustments to reconcile net income to net cash provided by
    operating activitiesDeferred income taxes


46



106



(243
)Change in liability for uncertain tax positions


37



63



149Depreciation and amortization of property and equipment


1,054



933



1,070Amortization of intangible assets


115



151



138Amortization of deferred financing costs


478



344



279Amortization of debt discount


111



170



245Amortization of beneficial conversion feature






54



Change in fair value of warrant liability


110







Loan termination fee accrual


243



123



Bad debt expense


180



176



26Stock issued in lieu of cash compensation


101



86



76Stock-based compensation expense


347



187



41Write-down of inventory for obsolescence


197



156



141Loss (gain) on sale of fixed assets


20



15



(3
)Other, primarily effect of foreign currency gain and bank fees


(324
)


(412
)


(274
)Changes in operating assets and liabilitiesIncrease in trade accounts receivable


(4,592
)


(2,454
)


(1,037
)(Increase) decrease in other receivables


(394
)


3



(272
)Increase in inventories


(1,697
)


(2,330
)


(200
)(Increase) decrease in prepaids and other current assets


(1,350
)


39



(49
)Increase in other assets


(6
)


(11
)


Increase (decrease) in accounts payable


4,063



(416
)


450Increase in accrued expenses


1,184



1,231



530Decrease in foreign tax settlement


(334
)


(327
)


(208
)Net cash provided by continuing operations


1,565



18



1,940Net cash used in discontinued operations










(68
)Net cash provided by operating activities


1,565



18



1,872Cash flows from investing activitiesProceeds from sale of fixed assets


4



4



66Purchases of property and equipment


(218
)


(489
)


(296
)Investments in software development


(2,123
)


(1,551
)


(669
)Acquisition of noncontrolling interest


(1,000
)






Proceeds from sale of DAC










1,100Net cash provided by (used in) investing activities


(3,337
)


(2,036
)


201Cash flows from financing activitiesProceeds from bank borrowings and lines of credit


96,610



88,658



66,531Principal payments on bank borrowings and lines of credit


(94,435
)


(85,032
)


(69,025
)Issuance of common stock






3



189Proceeds from issuance of Preferred stock, net of costs


825







411Payment of debt issuance costs






(1,304
)


Payment of loan amendment fees


(79
)






Payment of dividends to noncontrolling interest






(205
)


Payment of dividends on Preferred stock


(111
)


(110
)


(118
)Net cash provided by (used in) financing activities


2,810



2,010



(2,012
)Effect of exchange rate changes on cash and cash equivalents


164



(123
)


57Net increase (decrease) in cash and cash equivalents


1,202



(131
)


118Cash and cash equivalents at beginning of period


598



729



611Cash and cash equivalents at end of period

$
1,800


$
598


$
729Supplemental Disclosure of Cash Flow InformationCash paid during the period for interest

$
1,108


$
896


$
682Cash paid during the period for income taxes

$
415


$
799


$
370Supplemental disclosures of non-cash investing and financing
    activities:Conversion of preferred stock to common stock

$
450


$
55


$
1,040Fair value of warrants issued in connection with new term loan

$



$
333


$
Fair value of warrants issued in connection with sale of
    preferred stock

$



$



$
23Increase in fair value of warrants due to modification

$
88


$



$
Acquisition of noncontrolling interest under short and long-term
    debt obligations

$
2,950


$



$
Note receivable in connection with sale of DAC

$



$



$
344Conversion of convertible subordinated debenture

$



$
250


$
Amortization of convertible subordinated debenture beneficial
    conversion feature

$



$
54


$
Purchase of equipment under capital lease obligation

$
27


$
21


$
Preferred stock dividends

$
205


$
195


$
180    49




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (1)
    Organization
    and Summary of Significant Accounting Policies  Organization
    and Liquidity
  ®
    and/or
  Form 10-K
  Principles
    of Consolidation
   50




---



##### Table of Contents



Use of
    Estimates
      Cash
    Equivalents
    Revenue
    Recognition
    Multiple element arrangements in 2007 and
    2008  set-up and/or 605-25, 605-25 vendor-specific Vendor-specific vendor-specific vendor-specific
 51




---



##### Table of Contents



set-up 605-25, set-up and/or set-up/data
  985-605,
  Multiple element arrangements in 2009  2009-13, 605-25 2009-13 2009-13 2009-13 2009-13 2009-13, set-up/data set-up/data
  2009-14, 985-605 2009-14, 605-25 2009-13. 605-25 985-605 2009-14 2009-14 2009-14
  2009-14
 52




---



##### Table of Contents



605-25, 2009-13, 985-605, vendor-specific 985-605,
  2009-13 2009-14
  Three Months EndedMarch 31, 2009


June 30, 2009


September 30, 2009As


As


As


As


As


AsReported


Adjusted


Reported


Adjusted


Reported


Adjusted(In thousands, except per share amounts)(Unaudited)Net sales

$
13,265


$
13,202


$
21,514


$
21,514


$
21,606


$
21,555Income (loss) from continuing operations before income tax
    expense


(1,270
)


(1,333
)


1,004



1,004



1,336



1,298Net income (loss) attributable to DRI Corporation


(1,010
)


(1,073
)


1,153



1,153



960



922Net income (loss) per basic share applicable to common
    shareholders

$
(0.09
)

$
(0.10
)

$
0.09


$
0.09


$
0.08


$
0.07Net income (loss) per diluted share applicable to common
    shareholders

$
(0.09
)

$
(0.10
)

$
0.09


$
0.09


$
0.07


$
0.07Six Months Ended


Nine Months EndedJune 30, 2009


September 30, 2009As


As


As


AsReported


Adjusted


Reported


Adjusted(In thousands, except per share amounts)(Unaudited)Net sales

$
34,779


$
34,716


$
56,385


$
56,271Income (loss) from continuing operations before income tax
    expense


(266
)


(329
)


1,070



969Net income (loss) attributable to DRI Corporation


143



80



1,103



1,002Net income (loss) per basic share applicable to common
    shareholders

$
(0.00
)

$
(0.00
)

$
0.08


$
0.06Net income (loss) per diluted share applicable to common
    shareholders

$
(0.00
)

$
(0.00
)

$
0.08


$
0.06    53




---



##### Table of Contents



Three Months Ended


Three Months EndedMarch 31, 2009


June 30, 2009Multiple











MultipleAs


Element


Mobitec


As


As


Element


Mobitec


AsReported


Revenue


Brazil Ltda.


Adjusted


Reported


Revenue


Brazil Ltda.


Adjusted(In thousands) (Unaudited)








(In thousands) (Unaudited)Net sales

$
13,265


$
(388
)

$
(22
)

$
12,855


$
21,514


$
(154
)

$
(9
)

$
21,351Income (loss) from continuing operations before income tax
    expense


(1,270
)


(98
)


91



(1,277
)


1,004



(98
)


(54
)


852   Three Months EndedSeptember 30, 2009MultipleAs


Element


Mobitec


AsReported


Revenue


Brazil Ltda.


Adjusted(In thousands) (Unaudited)Net sales

$
21,606


$
(115
)

$
(110
)

$
21,381Income (loss) from continuing operations before income tax
    expense


1,336



(268
)


(129
)


939   Six Months Ended


Nine Months EndedJune 30, 2009


September 30, 2009Multiple











MultipleAs


Element


Mobitec


As


As


Element


Mobitec


AsReported


Revenue


Brazil Ltda.


Adjusted


Reported


Revenue


Brazil Ltda.


Adjusted(In thousands) (Unaudited)








(In thousands) (Unaudited)Net sales

$
34,779


$
(542
)

$
(31
)

$
34,206


$
56,385


$
(657
)

$
(141
)

$
55,587Income (loss) from continuing operations before income tax
    expense


(266
)


(196
)


37



(425
)


1,070



(464
)


(92
)


514        54




---



##### Table of Contents



Sales
    Taxes
    Trade
    Accounts Receivable
    Inventories
  first-in, end-of-life
  Property
    and Equipment
    Goodwill
    and Indefinite Life Intangible Assets
     55




---



##### Table of Contents



Intangible
    Assets
    Research
    and Development Costs
    Advertising
    Costs
    Shipping
    and Handling Fees and Costs
    Stock-Based
    Compensation
    Foreign
    Currency
      Income
    Taxes
   56




---



##### Table of Contents



Fair
    Value of Assets and Liabilities
  820-10, 820-10 820-10-15, 820-10 820-10
  815-40.
  820-10
 57




---



##### Table of Contents



Fair
    Value of Financial Instruments
    Product
    Warranties
    Year Ended December 31,2009


2008


2007Balance at beginning of period

$
495


$
491


$
384Additions charged to costs and expenses


399



236



225Deductions


(156
)


(164
)


(135
)Foreign exchange translation (gain) loss


67



(68
)


17Balance at end of period

$
805


$
495


$
491   Recent
    Accounting Pronouncements
    820-10-15, No. FAS 157-2, 820-10, 820-10
 58




---



##### Table of Contents



820-10
  805-10, 805-10 805-10 805-10 805-10 805-10
  810-10-65, 810-10-65 810-10-65 810-10-65 810-10-65 810-10-65
  
    The noncontrolling interests in our subsidiaries of which we
    have less than 100% ownership have been reclassified to
    shareholders equity.
    Consolidated net income (loss) has been adjusted to include the
    net income (loss) attributed to the noncontrolling interest in
    our subsidiaries of which we have less than 100% ownership.
    Consolidated comprehensive income (loss) has been adjusted to
    include the comprehensive income (loss) attributed to the
    noncontrolling interest in our subsidiaries of which we have
    less than 100% ownership.
    We have disclosed for each reporting period the amounts of
    consolidated income (loss) attributed to the Company and the
    noncontrolling interest in our subsidiaries of which we have
    less than 100% ownership. In addition, for each reporting period
    we have presented a reconciliation at the beginning and end of
    the period of the carrying amount of equity attributable to the
    Company and noncontrolling interest in our subsidiaries of which
    we have less than 100% ownership.  815-10, 815-10
 59




---



##### Table of Contents



815-10 815-10
  350-30-65, FAS 142-3,Determination 350-30-65 350-30-65 350-30-65 350-30-65
  815-40, No. 07-5, 815-40 815-10-15 815-40 815-40.
  855-10, 855-10 855-10 855-10,
  (2)
    Mobitec
    Brazil Ltda     60




---



##### Table of Contents



810-10-65,
  (3)
    Discontinued
    Operations    205-20,
  Year EndedDecember 31,2007(In thousands)Net sales

$
239Loss before income tax expense


(219
)    61




---



##### Table of Contents



(4)
    Goodwill
    and Other Intangible Assets      (In thousands)Balance as of January 1, 2007

$
10,289Effect of exchange rates


744Balance as of December 31, 2007


11,033Effect of exchange rates


(1,999
)Balance as of December 31, 2008


9,034Effect of exchange rates


759Balance as of December 31, 2009

$
9,793     Weighted


December 31, 2009


December 31, 2008Average


Gross





Net


Gross





NetRemaining Life


Carrying


Accumulated


Carrying


Carrying


Accumulated


Carrying(Years)


Amount


Amortization


Amount


Amount


Amortization


Amount(In thousands)Intangible assets subject to amortization:Patents and development costs


0.0


$



$



$



$
10


$
10


$
Customer lists


6.55



1,666



938



728



1,550



769



781Resale rights to DAC products


0.0















58



49



9$
1,666


$
938


$
728


$
1,618


$
828


$
790       (5)
    Accounts
    Receivable  December 31,2009


2008(In thousands)Trade accounts receivable

$
18,465


$
12,582Less: allowance for doubtful accounts


(273
)


(179
)$
18,192


$
12,403  62




---



##### Table of Contents



(6)
    Property
    and Equipment  EstimatedDepreciable

December 31,Lives (Years)

2009


2008(In thousands)Leasehold improvements

3 - 10

$
306


$
286Automobiles

4 - 6


387



13Computer and telecommunications equipment

2 - 5


1,137



976Software

5


7,163



4,592Test equipment

3 - 7


144



124Furniture and fixtures

2 - 10


2,331



2,490Software projects in progress




1,245



1,39212,713



9,873Less accumulated depreciation and amortization




7,447



6,266Total property and equipment, net



$
5,266


$
3,607       (7)
    Inventories,
    net  December 31,2009


2008(In thousands)Raw materials and system components

$
8,924


$
6,803Work in process


35



243Finished goods


4,083



3,616Total inventories

$
13,042


$
10,662   (8)
    Leases     63




---



##### Table of Contents



Capital


OperatingLeases


Leases(In thousands)Year Ending December 31,2010

$
17


$
1,2442011


17



9242012


13



6682013


1



5302014






332Thereafter






993Total future minimum lease payments


48


$
4,691Less amount representing interest (9% Interest)


5Present value of future minimum capital lease payments


43Less current portion


15Long-term portion

$
28   (9)
    Lines of
    Credit and Loans Payable  a)
    Domestic
    lines of credit and loan payable     64




---



##### Table of Contents



Fiscal Quarter Ending:

EBITDA:

Leverage Ratio:March 31, 2009

$
3,000,000



5.70 to 1.0June 30, 2009

$
2,500,000



6.25 to 1.0September 30, 2009

$
4,000,000



4.55 to 1.0       
    Permit the Borrowers and DRI to make a recallable equity
    investment in Mobitec AB on or about October 1, 2009 (the
    BHC Effective Date), in an amount not to exceed the
    Contribution Amount (as defined below);
    Permit the Borrowers and DRI to make a recallable equity
    investment in Mobitec EP on or about the BHC Effective Date in
    an amount not to exceed $400,000;
    Allow the Borrowers to make dividends or distributions to DRI to
    enable DRI to pay up to the sum of (a) $150,000 plus
    (b) the result of 9.5% of the amount of Series K
    Preferred Stock issued by DRI on or prior to October 31,
    2009, in the aggregate in any fiscal year, of dividends or
    distributions with respect to DRIs preferred stock;
    Allow the Borrowers and DRI to enter into any transaction,
    capital contribution, investment and transfer which, in the
    aggregate for all such events, do not exceed $2 million
    plus the Contribution Amount; and
    Permit DRI to adopt the Certificate of Designation of, and amend
    its Organizational Documents (as defined in the BHC Agreement)
    to authorize, the Series K Preferred Stock.    
    Obtain PNCs consent for DRI to issue a new series of
    preferred stock and to be designated the Series K Senior
    Convertible Preferred Stock (the Series K Preferred
    Stock), so long as the net proceeds of such issuance are
    utilized to repay outstanding Advances (as defined in the PNC
    Agreement) and to use Advances to make a recallable equity
    investment in Mobitec AB on or after the PNC Effective Date in
    an amount not to exceed, if DRI receives gross proceeds from the
    issuance of the Series K Preferred Stock of (i) no
    more than $3.5 million, $1 million,
    (ii) $5 million, $1.5 million, and (iii) in
    excess of $3.5 million but less than $5 million,
    $1 million plus the lesser of (a) $500,000 and
    (b) an amount determined by multiplying (x) the
    quotient (expressed as a percentage) of (1) the amount by
    which gross proceeds from the issuance of Series K
    Preferred Stock exceeds $3.5 million, divided by
    (2) $1.5 million, by (y) $500,000 (the foregoing
    clauses (i) through (iii) collectively referred to as
    the 65




---



##### Table of Contents



Contribution Amount); provided , however , that
    (x) the amount of the proceeds applied to repay Advances
    must be equal to or greater than the Contribution Amount and
    (y) the amount of the proceeds as applied to prepay the
    Term Loan may not exceed the Prepayment Amount, as defined
    below; and  
    Obtain PNCs consent to the prepayment of the Term Loan
    with a portion of the proceeds of the Series K Preferred
    Stock in an amount not to exceed the Prepayment Amount;      
    Allows the Borrowers to make dividends or distributions to DRI
    to enable DRI to pay up to the sum of (a) $150,000 plus
    (b) the result of 9.5% of the amount of the Series K
    Preferred Stock issued by DRI on or prior to October 31,
    2009;
    Permits the Borrowers and DRI to enter into any transaction,
    capital contribution, investment and transfers which, in the
    aggregate for all such events, do not exceed $2 million
    plus the Contribution Amount; and
    Permits DRI to adopt the Certificate of Designation of, and
    amend its Articles of Incorporation to authorize, the
    Series K Preferred Stock.      Fiscal Quarter Ending:

Leverage Ratio:September 30, 2009


5.25 to 1.0December 31, 2009


5.00 to 1.0March 31, 2010


6.75 to 1.0June 30, 2010


8.25 to 1.0September 30, 2010


7.00 to 1.0December 31, 2010 and each fiscal quarter ending thereafter


5.50 to 1.0    66




---



##### Table of Contents



b)
    International
    lines of credit and loans payable           67




---



##### Table of Contents



December 31,2009


2008(In thousands)Line of credit with PNC Bank, National Association dated
    June 30, 2008; payable in full June 30, 2011; secured
    by all tangible and intangible U.S. assets of the Company; bears
    average interest rate of 5.00% and 6.28% in 2009 and 2008,
    respectively

$
3,786


$
1,601Line of credit with Handelsbanken; renews annually on a
    calendar-year basis; secured by certain assets of the Swedish
    subsidiary, Mobitec AB; bears average interest rate of 3.53% and
    6.58% in 2009 and 2008, respectively






732Line of credit with Handelsbanken; renews annually on a
    calendar-year basis; secured by accounts receivable of the
    Swedish subsidiary, Mobitec AB; bears average interest rate of
    4.83% and 6.95% in 2009 and 2008, respectively


2,047



573Line of credit with Handelsbanken dated June 23, 2004;
    open-ended term; secured by accounts receivable and inventory of
    the German subsidiary, Mobitec GmbH; bears average interest rate
    of 3.48% and 5.62% in 2009 and 2008, respectively


1,367



837Total lines of credit

$
7,200


$
3,743  68




---



##### Table of Contents



(10)
    Long-Term
    Debt    December 31,2009


2008(In thousands)Term loan with BHC Interim Funding III, L.P., dated
    June 30, 2008; payable in full June 30, 2011; secured
    by substantially all tangible and intangible assets of the
    Company; bears interest rate of 12.75%

$
4,750


$
5,000Term loan with Svenska Handelsbanken AB, dated June 30,
    2008; payable in quarterly installments of $52,000; secured by
    accounts receivable and inventory of the Swedish subsidiary,
    Mobitec AB; bears average interest rate of 7.32%


470



483Term loan with Robert Demore, dated August 31, 2009;
    payable in quarterly installments of $162,500; unsecured; bears
    interest rate of 5.0%


1,950



Term loan with HDFC Bank, dated October 5, 2009; payable in
    monthly installments of $4,461; bears interest rate of 8.0%


132



Term loan with HDFC Bank, dated November 14, 2009; payable
    in monthly installments of $481; bears interest rate of 9.51%


22



Total long-term debt


7,324



5,483Term loan termination fee accrual


346



123Less current portion


960



193Less debt discount


166



2786,544



5,135Long-term portion of capital leases


28



14Total long-term debt and capital leases, less current portion

$
6,572


$
5,149       Year Ending December 31,

Amount(In thousands)2010

$
9602011


5,6602012


6982013


52014


1Thereafter


Total

$
7,324  69




---



##### Table of Contents



(11)
    Accrued
    Expenses and Other Current Liabilities  December 31,2009


2008(In thousands)Salaries, commissions, and benefits

$
2,024


$
1,428Taxes  payroll, sales, income, and other


1,967



851Warranties


805



495Current portion of capital leases


15



19Interest payable


166



281Deferred revenue


557



694Customer rebates and credits


404



165Other


521



426Total accrued expenses

$
6,459


$
4,359   (12)
    Preferred
    Stock    Series K
    Preferred
     70




---



##### Table of Contents



20-day
      Series E
    Preferred
    Series G
    Preferred
    Series H
    Preferred
   71




---



##### Table of Contents



Series J
    Preferred
    Series AAA
    Preferred
    Liquidation
    Priority
    (13)
    Comprehensive
    Income (Loss)  December 31,2009


2008


2007(In thousands)Net Income

$
1,976


$
2,131


$
862Other comprehensive income (loss), net of tax:Foreign currency translation adjustment, net of tax


1,464



(4,058
)


1,173Total other comprehensive income (loss), net of tax


1,464



(4,058
)


1,173Comprehensive income (loss)


3,440



(1,927
)


2,035Comprehensive income (loss) attributable to the noncontrolling
    interest


29



181



(39
)Comprehensive income (loss) attributable to DRI Corporation

$
3,469


$
(1,746
)

$
1,996   (14)
    Common
    Stock Warrants     72




---



##### Table of Contents



Outstanding

Exercise

ExpirationWarrants

Price

Date2,500

$
3.19


January 2010240,000

$
2.21


June 201055,000

$
2.02


October 201093,750

$
1.60


March 201115,929

$
2.26


June 201280,000

$
2.00


April 2013150,000

$
1.75


June 2013200,000

$
1.00


June 2013   (15)
    Stock-Based
    Compensation     73




---



##### Table of Contents



WeightedWeighted-


AverageAverage


Remaining


AggregateExercise


Contractual


IntrinsicShares


Price


Term


ValueOutstanding at December 31, 2008


848,765


$
2.63



7.9


$
Granted


200,000



1.50Exercised


Expired


(20,459
)


1.95Forfeited


(6,850
)


2.67Outstanding at December 31, 2009


1,021,456


$
2.42



7.5


$
47,364Vested and expected to vest at December 31, 2009


829,968


$
2.43



7.9


$
42,339Exercisable at December 31, 2009


442,643


$
2.45



5.9


$
19,604       WeightedWeighted-


AverageAverage


Remaining


AggregateExercise


Contractual


IntrinsicShares


Price


Term


ValueOutstanding at December 31, 2008


351,414


$
2.65



3.2


$
Granted


157,000



1.51Exercised






Expired


(50,000
)


2.90Outstanding at December 31, 2009


458,414


$
2.23



3.6


$
34,076Vested and expected to vest at December 31, 2009


407,337


$
2.20



3.7


$
33,389Exercisable at December 31, 2009


229,770


$
2.45



2.2


$
13,556     in-the-money
 74




---



##### Table of Contents



2009

2008

2007Weighted average fair value of grants

$
0.74


$
1.59


$
1.65Risk-free interest rate


2.4
%


3.4
%


4.2
%Expected life


6.3 years



6.8 years



6.9 yearsExpected volatility


71
%


70
%


72
%Expected dividends


None



None



None     Risk-free interest rate.
  Expected life.
  Expected volatility.
  Expected dividends.
        
    Regular monthly retainer fee compensation is paid up to $1,000
    in Common Stock and the remainder paid in cash, with shares
    payable determined as described below.
    Shares of Common Stock payable under this plan are issued on a
    quarterly basis.
    Individual directors may annually (as of each Annual Meeting of
    Shareholders) elect to opt in or out of the
    payment-in-stock
    provision of the plan, effective the following January 1. 75




---



##### Table of Contents




    Each key executive manager of the Company may make the election
    to receive up to $1,000 per month of
    his/her
    compensation in the form of Common Stock, with shares payable
    determined as described below.
    Shares of Common Stock payable under the plan are issued on a
    quarterly basis.
    The election to participate will be on a yearly basis, effective
    January 1 of each year. If the election is made to participate,
    the commitment is for the full year, unless compelling and
    extenuating circumstances arise supporting doing otherwise.    (16)
    Income
    Taxes  740-10-25. 740-10-25 740-10-25,
    2009


2008Balance as of January 1

$
264


$
267Additions for tax positions related to prior years






Additions for tax positions related to the current year


(62
)


44Foreign exchange translation gain


26



(47
)Balance as of December 31

$
228


$
264       Year Ended December 31,2009


2008


2007(In thousands)Domestic

$
(360
)

$
444


$
(7
)Foreign


3,172



2,783



1,160$
2,812


$
3,227


$
1,153  76




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##### Table of Contents



Year Ended December 31,2009


2008


2007(In thousands)CurrentU.S. federal

$



$



$
2State






2



4Foreign


861



932



384861



934



390DeferredU.S. federal










(247
)State










(41
)Foreign


(25
)


162



189(25
)


162



(99
)$
836


$
1,096


$
291     Year Ended December 31,2009


2008


2007Percentage





Percentage





Percentageof Pretax





of Pretax





of PretaxAmount


Earnings (Loss)


Amount


Earnings (Loss)


Amount


Earnings (Loss)(In thousands)Computed expected tax expense (benefit)

$
956



34.0
%

$
1,028



34.0
%

$
392



34.0
%Increase (decrease) in income taxes resulting from:Nondeductible expenses


99



3.5



72



2.4



33



2.9(Increase)/decrease in prior year NOL (correction)


(85
)


(3.0
)


(1,127
)


(37.3
)






Foreign subsidiary losses


















(10
)


(0.9
)Higher (lower) rates on earnings of foreign operations


(9
)


(0.3
)


211



7.0



1



0.1State taxes, net of federal benefit










6



0.2



(37
)


(3.2
)Uncertain tax positions


(70
)


(2.5
)


63



2.1



149



12.9Changes in valuation allowance


(55
)


(2.0
)


843



27.9



(237
)


(20.6
)$
836



29.7
%

$
1,096



36.3
%

$
291



25.2
%  77




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##### Table of Contents



December 31,2009


2008(In thousands)Deferred tax assetsFederal and state loss carryforwards

$
6,301


$
5,478Federal tax credits


305



336Foreign loss carryforwards


2,259



2,274Inventory reserve and capitalization


122



114Intangible assets


1



9Other accruals and reserves


232



207Total gross deferred tax assets


9,220



8,418Less valuation allowance


(8,119
)


(8,175
)1,101



243Deferred tax liabilitiesProperty and equipment


(851
)


(149
)Untaxed foreign reserves


(338
)


(137
)Total deferred tax liabilities


(1,189
)


(286
)Net deferred tax liabilities

$
(88
)

$
(43
)       December 31,2009


2008(In thousands)Current assets

$
250


$
94Noncurrent assets

$
851


$
149Noncurrent liabilities


(1,189
)


(286
)Net noncurrent liabilities

$
(338
)

$
(137
)Net deferred assets (liabilities)

$
(88
)

$
(43
)    78




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##### Table of Contents



(17)
    Related
    Party Transactions    (18)
    Segment
    and Geographic Information      2009


2008


2007(In thousands)Net sales  continuing operationsNorth America

$
32,104


$
30,576


$
27,687Europe


26,602



20,008



15,899Asia-Pacific


15,644



8,018



4,839Middle East


381



948



2,272South America


7,554



11,009



7,235$
82,285


$
70,559


$
57,932Long-lived assets  continuing operationsNorth America

$
3,670


$
2,982


$
1,345Europe


1,948



1,527



1,538Asia-Pacific


313



46



44South America


225



209



246$
6,156


$
4,764


$
3,173     *
    
    Geographic information regarding net sales was determined based
    upon sales to each geographic area.**
    
    Geographic information regarding long-lived assets was
    determined based upon the recorded value of those assets on the
    balance sheets of each of the geographic locations. 79




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##### Table of Contents



(19)
    Legal
    Proceedings    (20)
    Foreign
    Tax Settlement       80




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##### Table of Contents



(21)
    Per Share
    Amounts    2009


2008


2007(In thousands, except share amounts)Net income applicable to common shareholders of DRI Corporation

$
1,511


$
1,193


$
380Effect of dilutive securities on net income of DRI Corporation:Convertible debt






10



Convertible preferred stock


11







Net income applicable to common shareholders of DRI Corporation,
    assuming conversions

$
1,522


$
1,203


$
380Weighted average shares outstanding  Basic


11,548,403



11,333,984



10,751,220Effect of dilutive securities on shares outstanding:Options


10,898



26,170



73,078Warrants


71,504



19,925



321,809Convertible debt






112,394



Convertible preferred stock


85,002







Weighted average shares outstanding  Diluted


11,715,807



11,492,473



11,146,107     (22)
    Unaudited
    Quarterly Financial Data    Year Ended December 31, 2009Q1

Q2

Q3

Q4(In thousands, except share and per share amounts)(Unaudited)Net sales

$
13,202


$
21,514


$
21,555


$
26,014Gross profit


3,686



6,670



7,167



7,273Operating income (loss)


(866
)


1,326



2,007



1,375Net income (loss) applicable to common shareholders of DRI
    Corporation


(1,149
)


1,075



842



743Net income (loss) applicable to common shareholders per common
    share:Basic

$
(0.10
)

$
0.09


$
0.07


$
0.06Diluted

$
(0.10
)

$
0.09


$
0.07


$
0.06Weighted average number of common shares and common share
    equivalents outstandingBasic


11,473,219



11,498,254



11,522,979



11,696,980Diluted


11,473,219



13,228,690



13,395,830



13,629,129  81




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##### Table of Contents



Year Ended December 31, 2008Q1

Q2

Q3

Q4(In thousands, except share and per share amounts)(Unaudited)Net sales

$
17,025


$
19,103


$
18,794


$
15,637Gross profit


6,032



6,543



6,500



4,813Operating income (loss)


1,436



1,492



1,503



(517
)Net income (loss) applicable to common shareholders of DRI
    Corporation


648



384



662



(501
)Net income (loss) applicable to common shareholders per common
    shareBasic

$
0.06


$
0.03


$
0.06


$
(0.04
)Diluted

$
0.06


$
0.03


$
0.06


$
(0.04
)Weighted average number of common shares and common share
    equivalents outstandingBasic


11,197,563



11,227,274



11,453,588



11,464,333Diluted


12,873,397



11,610,692



13,052,316



11,464,333   (23)
    Employee
    Benefit Plan    (24)
    Subsequent
    Events     82




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##### Table of Contents



Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A(T).
    Controls
    and Procedures  13a-15(e) Form 10-K,
  Managements
    Report on Internal Control Over Financial
    Reporting
  Rule 13a-15(f). Internal Control- Integrated Framework
      Material
    Weakness  Mobitec Brazil
   83




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##### Table of Contents



Material
    Weakness  Revenue Recognition
  Form 10-Q
    
    A review of open sales orders is performed on a daily basis by
    an accounting manager. This review allows us to identify new
    orders with multiple deliverables as they are received so that
    we may determine the appropriate revenue accounting method to be
    applied and begin properly accounting for such orders
    immediately upon receipt.
    A separate file of supporting documentation for each identified
    multiple deliverable order is compiled and organized by an
    accounting manager. Documentation in the file folder for each
    order with multiple deliverables includes copies of the contract
    or purchase order, customer acceptance forms,
    E-mail
    correspondence with accounting management, sales management,
    project management, and customer representatives, as well as
    support for fair value calculations performed in applying the
    proper revenue accounting methods. Maintaining separate files
    with supporting documentation for each multiple deliverable
    contract allows for an efficient review by management and helps
    maintain a proper audit trail.
    Each month, the Corporate Assistant Controller reviews the
    month-end open sales order report to ensure that all multiple
    deliverable contracts have been properly identified. In
    addition, for all contracts identified as containing multiple
    deliverables, the Corporate Assistant Controller reviews the
    documentation supporting the fair value calculations including
    the deliverables and the corresponding fair values, and also
    reviews the calculation for computational errors. 84




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##### Table of Contents




    The Chief Financial Officer reviews all contracts exceeding a
    set scope to determine the appropriate revenue accounting
    guidance to be applied. Additionally, the Chief Financial
    Officer performs a review of the fair value calculations of
    contracts identified as containing multiple deliverables as well
    as a review of the appropriateness of the revenue accounting
    guidance applied to those contracts. This review is secondary to
    and in addition to the review performed by the Corporate
    Assistant Controller described above.    Changes
    in Internal Control over Financial Reporting
    Item 9B.
    Other
    Information   PART III    Item 10.
    Directors,
    Executive Officers and Corporate Governance    Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Shareholder Matters    Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence    Item 14.
    Principal
    Accountant Fees and Services   85




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##### Table of Contents



PART IV  Item 15.
    Exhibits  (1)(2)
    Financial Statements
    (3)
    Exhibits    ExhibitNo.

Document3
.1

Amended and Restated Articles of Incorporation of the Company
    (incorporated herein by reference from the Companys
    Registration Statement on
    Form S-3,
    filed with the SEC on December 23, 2003)3
.1.1

Articles of Amendment to the Articles of Incorporation of the
    Company an amendment to eliminate a staggered election of Board
    members (incorporated herein by reference to the Companys
    Report on
    Form 10-Q
    for the quarter ended June 30, 2005)3
.1.2

Articles of Amendment to Articles of Incorporation of the
    Company, dated February 2, 2010, amending and restating the
    Companys Preferred Stock capitalization (filed herewith)3
.2

Articles of Amendment to Articles of Incorporation of the
    Company containing Certificate of Designation of Series E
    Redeemable Nonvoting Convertible Stock (incorporated herein by
    reference from the Companys Report on
    Form 8-K,
    filed with the SEC on November 12, 2003.)3
.3

Articles of Amendment to Articles of Incorporation of the
    Company containing Amended and Restated Certificate of
    Designation of Series F Redeemable Convertible Preferred
    Stock (incorporated herein by reference from the Companys
    Report on
    Form 8-K,
    filed with the SEC on April 14, 2004)3
.4

Articles of Amendment to the Articles of Incorporation of the
    Company containing Series AAA Preferred Stock Change in
    Quarterly Dividend Accrual and Conversion Price (incorporated
    herein by reference to the Companys Report on
    Form 10-K
    for the year ended December 31, 2004)3
.5

Articles of Amendment to Articles of Incorporation of the
    Company containing Amended and Restated Certificate of
    Designation of Series G Convertible Preferred Stock
    (incorporated herein by reference to the Companys Report
    on
    Form 8-K
    filed on June 28, 2005)3
.5.1

Articles of Correction of Articles of Amendment to the Articles
    of Incorporation of the Company containing a correction to an
    error in the Amended Certificate of Designation of Series G
    Convertible Preferred Stock (incorporated herein by reference to
    the Companys Report on
    Form 10-Q
    for the quarter ended June 30, 2005)3
.6

Articles of Amendment to Articles of Incorporation of the
    Company containing Amended and Restated Certificate of
    Designation of Series H Convertible Preferred Stock
    (incorporated herein by reference to the Companys Report
    on
    Form 8-K
    filed on November 4, 2005)3
.7

Articles of Amendment to Articles of Incorporation of the
    Company containing Amended and Restated Certificate of
    Designation of Series I Convertible Preferred Stock
    (incorporated herein by reference to the Companys Report
    on
    Form 8-K
    filed on March 23, 2006)3
.8

Articles of Amendment to Articles of Incorporation of the
    Company containing Certificate of Designation of Series D
    Junior Participating Preferred Stock (incorporated herein by
    reference to the Companys Registration Statement on
    Form 8-A
    filed with the SEC on December 17, 1999)3
.8.1

Amendment No. 1 to Certificate of Designation of
    Series D Junior Participating Preferred Stock (incorporated
    herein by reference to the Companys Report on
    Form 8-K
    filed with the SEC on September 28, 2006)3
.8.2

Amendment No. 2 to Certificate of Designation of
    Series D Junior Participating Preferred Stock (incorporated
    herein by reference to the Companys Registration Statement
    on
    Form 8-A
    filed with the SEC on October 2, 2006) 86




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##### Table of Contents



ExhibitNo.

Document3
.9

Articles of Amendment to Articles of Incorporation of the
    Company containing Amended and Restated Certificate of
    Designation of Series J Convertible Preferred Stock
    (incorporated herein by reference to the Companys Report
    on
    Form 10-Q
    for the quarter ended June 30, 2007)3
.10

Articles of Amendment to Articles of Incorporation of the
    Company containing Certificate of Designation of Series K
    Senior Convertible Preferred Stock (incorporated herein by
    reference to the Companys Report on
    Form 8-K
    filed with the SEC on October 15, 2009)3
.10.1

Articles of Amendment to Articles of Incorporation of the
    Company containing Certificate of Designation of Series K
    Senior Convertible Preferred Stock (incorporated herein by
    reference to the Companys Report on
    Form 8-K
    filed with the SEC on November 12, 2009)3
.10.2

Articles of Amendment to Articles of Incorporation of the
    Company containing Certificate of Designation of Series K
    Senior Convertible Preferred Stock, dated December 29, 2009
    (filed herewith)3
.10.3

Amendment to Certificate of Designation of Series K Senior
    Convertible Preferred Stock, dated January 5, 2010 (filed
    herewith)3
.11

Amended and Restated Bylaws of the Company (incorporated herein
    by reference to the Companys Report on
    Form 8-K
    filed on September 18, 2006)3
.11.1

Amendment to Bylaws of DRI Corporation, dated as of
    September 12, 2007 (incorporated herein by reference to the
    Companys Report on
    Form 8-K
    filed with the SEC on September 14, 2007)4
.1

Form of specimen certificate for Common Stock of the Company
    (incorporated herein by reference from the Companys
    Registration Statement on
    Form SB-2,
    filed with the SEC (SEC File
    No. 33-82870-A)4
.2

Form of Underwriters Warrants issued by the Company to the
    Underwriter (incorporated herein by reference from the
    Companys Report on
    Form 8-K,
    filed with the SEC on April 22, 2004)4
.3

Warrant Agreement between the Company and Continental Stock
    Transfer & Trust Company (incorporated herein by
    reference from the Companys Registration Statement on
    Form SB-2,
    filed with the SEC (SEC File
    No. 33-82870-A))4
.4

Rights Agreement, dated as of September 22, 2006, between
    the Company and American Stock Transfer &
    Trust Company, as Rights Agent, together with the following
    exhibits thereto: Exhibit A  Certificate of
    Designation of Series D Junior Participating Preferred
    Stock of Digital Recorders, Inc. and the Amendment to
    Certificate of Designation of Series D Junior Participating
    Preferred Stock of Digital Recorders, Inc.;
    Exhibit B  Form of Right Certificate; and
    Exhibit C  Summary of Rights to Purchase Shares
    (incorporated herein by reference to the Companys
    Registration Statement on
    Form 8-A
    filed with the Securities and Exchange Commission on
    October 2, 2006)4
.4.1

Amendment No. 2 to Rights Agreement, dated July 8,
    2004, between Digital Recorders, Inc. and Continental Stock
    Transfer & Trust Company (incorporated herein by
    reference to the Companys Report on
    Form 8-K,
    filed with the SEC on July 8, 2004)4
.5

Omnibus Amendment dated as of January 10, 2007, effective
    December 31, 2006, by and among the Company, TwinVision of
    North America, Inc., Digital Audio Corporation, Robinson-Turney
    International, Inc., and Laurus Master Fund, Ltd. (incorporated
    herein by reference to the Companys Report on
    Form 8-K
    filed with the SEC on January 16, 2007)4
.6

Amended and Restated Secured Term Note dated as of
    January 10, 2007, effective December 31, 2006, by and
    between the Company, TwinVision of North America, Inc., Digital
    Audio Corporation, Robinson-Turney International, Inc., and
    Laurus Master Fund, Ltd. (incorporated herein by reference to
    the Companys Report on
    Form 8-K
    filed with the SEC on January 16, 2007)4
.7

Second Amended and Restated Registration Rights Agreement dated
    as of January 10, 2007, effective December 31, 2006,
    by and between the Company and Laurus Master Fund, Ltd.
    (incorporated herein by reference to the Companys Report
    on
    Form 8-K
    filed with the SEC on January 16, 2007) 87




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##### Table of Contents



ExhibitNo.

Document4
.8

Warrant, dated as of June 30, 2008, issued by the Company
    to BHC Interim Funding III, L.P. (incorporated herein by
    reference to the Companys Report on
    Form 8-K/A,
    filed with the SEC on August 14, 2008)4
.8.1

First Amendment to Warrant, dated March 26, 2009, by and
    between the Company and BHC Interim Funding III, L.P.
    (incorporated by reference to the Companys Report on
    Form 10-K
    filed with the SEC on March 31, 2009)4
.8.2

Second Amendment to Warrant, dated September 30, 2009, by
    and between the Company and BHC Interim Funding III, L.P.
    (incorporated by reference to the Companys Report on
    Form 10-Q
    for the quarter ended September 30, 2009)4
.8.3

Third Amendment to Warrant, dated December 29, 2009, by and
    between the Company and BHC Interim Funding III, L.P., (filed
    herewith)4
.9

Stock Purchase Warrant, dated as of October 13, 2003,
    issued by the Company to Dolphin Offshore Partners, L.P.
    (terminated) (incorporated herein by reference to the
    Companys Report on
    Form 8-K,
    , filed with the SEC on November 12, 2003)4
.10

Warrant Agreement, dated March 23, 2004, between Digital
    Recorders, Inc. and Fairview Capital Ventures LLC (incorporated
    herein by reference to the Companys Registration Statement
    on
    Form S-3,
    filed with the SEC on April 16, 2004)4
.11

Form of Warrant dated as of April 21, 2004, issued by
    Digital Recorders, Inc. to each of the Investors named in the
    Securities Purchase Agreement filed as Exhibit 10.16 hereto
    (incorporated herein by reference to the Companys Report
    on
    Form 8-K,
    filed with the SEC on April 22, 2004)4
.12

Warrant, dated April 26, 2004, issued by the Company to
    Roth Capital Partners, LLC (incorporated herein by reference to
    the Companys quarterly report on
    Form 10-Q
    for the quarter ended March 31, 2004)4
.12.1

Amended and Restated Warrant, dated October 6, 2004, issued
    by the Company to Roth Capital Partners, LLC (incorporated
    herein by reference the Companys quarterly report on
    Form 10-Q
    for the quarter ended September 30, 2004)4
.13

Warrant, dated October 6, 2004, issued by the Company to
    Riverview Group, LLC (incorporated herein by reference to the
    Companys Report on
    Form 8-K,
    filed with SEC on October 7, 2004)4
.14

Stock Purchase Warrant, dated June 23, 2005, issued by the
    Company to Dolphin Offshore Partners, L.P. (incorporated herein
    by reference to the Companys Report on
    Form 8-K
    filed on June 28, 2005)4
.15

Form of Stock Purchase Warrant between John D. Higgins and the
    Company (incorporated herein by reference to the Companys
    Report on
    Form 8-K
    filed on November 4, 2005)4
.16

Common Stock Purchase Warrant between the Company and Laurus
    Master Fund, Ltd., dated March 15, 2006 (incorporated
    herein by reference to the Companys Report on
    Form 8-K
    filed on March 21, 2006)4
.17

Stock Purchase Warrant issued by the Company to Transit Vehicle
    Technology Investments, Inc., dated March 21, 2006
    (incorporated herein by reference to the Companys Report
    on
    Form 8-K
    filed on March 23, 2006)4
.18

Common Stock Purchase Warrant issued by the Company to Laurus
    Master Fund, Ltd., dated as of April 28, 2006 (incorporated
    herein by reference to the Companys Report on
    Form 8-K
    filed on May 4, 2006)10
.1

Form of Office Lease Agreement, between the Company and Sterling
    Plaza Limited Partnership (incorporated herein by reference from
    the Companys
    Form 10-KSB/A,
    filed with the SEC on May 21, 2001)10
.1.1

First Amendment to Lease Agreement, between the Company and
    Sterling Plaza Limited Partnership, d/b/a Dallas Sterling Plaza
    Limited Partnership, dated August 25, 2003 (incorporated
    herein by reference to the Companys Registration Statement
    of
    Form S-1,
    filed with the SEC on January 4, 2005) 88




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##### Table of Contents



ExhibitNo.

Document10
.1.2

Second Amendment to Lease Agreement between the Company and
    Sterling Plaza Limited Partnership, d/b/a Dallas Sterling Plaza
    Limited Partnership, dated September 17, 2004 (incorporated
    herein by reference to the Companys Registration Statement
    of
    Form S-1,
    filed with the SEC on January 4, 2005)10
.2

Lease Agreement, between the Company and The Prudential Savings
    Bank, F.S.B., dated December 18, 1998 (incorporated herein
    by reference from the Companys
    Form 10-KSB/A,
    filed with the SEC on June 6, 2001)10
.2.1

First Lease Amendment, between the company and Property Reserve,
    Inc., f/k/a The Prudential Savings Bank, F.S.B., dated
    December 11, 2002 (incorporated herein by reference to the
    Companys Registration Statement of
    Form S-1,
    filed with the SEC on January 4, 2005)10
.2.2

Second Lease Amendment, between the Company and Property
    Reserve, Inc., f/k/a The Prudential Savings Bank, F.S.B., dated
    August 21, 2003 (incorporated herein by reference to the
    Companys Registration Statement of
    Form S-1,
    filed with the SEC on January 4, 2005)10
.2.3

Third Lease Amendment, between the Company and Property Reserve,
    Inc., f/k/a The Prudential Savings Bank, F.S.B., dated
    August 21, 2003 (incorporated herein by reference to the
    Companys Registration Statement of
    Forms S-1,
    filed with the SEC on January 4, 2005)10
.2.4

Fourth Lease Amendment, between the Company and Property
    Reserve, Inc., f/k/a The Prudential Savings Bank, F.S.B., dated
    September 8, 2003 (incorporated herein by reference to the
    Companys Registration Statement of
    Form S-1,
    filed with the SEC on January 4, 2005)10
.3

Form of Loan Agreement dated as of August 26, 2002, between
    the Company and John D. Higgins (incorporated herein by
    reference to the Companys Report on
    Form 8-K,
    filed with the SEC on August 30, 2002)10
.4

Form of Digital Recorders, Inc., 8% Convertible Debenture,
    dated August 26, 2002, issued to John D. Higgins
    (incorporated herein by reference to the Companys Report
    on
    Form 8-K,
    filed with the SEC on August 30, 2002)10
.5

Form of Security Agreement, dated August 26, 2002, between
    the Company and John D. Higgins (incorporated herein by
    reference to the Companys Report on
    Form 8-K,
    filed with the SEC on August 30, 2002)10
.6

Form of Pledge Agreement, dated August 26, 2002, between
    the Company and John D. Higgins (incorporated herein by
    reference to the Companys Report on
    Form 8-K,
    filed with the SEC on August 30, 2002)10
.7

Form of Subsidiary Guarantee, dated August 26, 2002, by
    Subsidiaries of the Company in favor of John D. Higgins
    (incorporated herein by reference to the Companys Report
    on
    Form 8-K,
    filed with the SEC on August 30, 2002)10
.8

Form of Subsidiary Security Agreement, dated August 26,
    2002, among the Company, TwinVision of North America Inc., and
    John D. Higgins (incorporated herein by reference to the
    Companys Report on
    Form 8-K,
    filed with the SEC on August 30, 2002)10
.9

Share Purchase Agreement, dated as of October 13, 2003, by
    and between Dolphin Offshore Partners, L.P. and the Company
    (incorporated herein by reference to the Companys Report
    on
    Form 8-K,
    filed with the SEC on November 12, 2003)10
.10

Securities Purchase Agreement, dated November 5, 2003, by
    and between the Company, as seller, and BFSUS Special
    Opportunities Trust PLC and Renaissance US
    Growth & Investment Trust PLC, collectively as
    purchasers (incorporated herein by reference to the
    Companys Report on
    Form 8-K,
    filed with the SEC on November 12, 2003)10
.11

Loan and Security Agreement, dated as of November 6, 2003,
    by and between LaSalle Business Credit, LLC, as lender, and the
    Company, as borrower (incorporated herein by reference to the
    Companys Report on
    Form 8-K,
    filed with the SEC on November 12, 2003)10
.11.1

Waiver, Consent and Fourth Amendment Agreement between the
    Company and LaSalle Business Credit, LLC, dated March 6,
    2006 (incorporated herein by reference to the Companys
    Report on
    Form 1-K
    filed with the SEC on April 17, 2006) 89




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##### Table of Contents



ExhibitNo.

Document10
.12

Amended and Restated Registration Rights Agreement, dated as of
    April 1, 2004, by and between the Company and Dolphin
    Offshore Partners, L.P. (incorporated herein by reference from
    the Companys Report on
    Form 8-K,
    filed with the SEC on April 14, 2004)10
.13

Securities Purchase Agreement dated as of April 21, 2004,
    among Digital Recorders, Inc. and the investors named therein
    (incorporated herein by reference to the Companys Report
    on
    Form 8-K,
    filed with the SEC on April 22, 2004)10
.14

Registration Rights Agreement, dated as of April 21, 2004,
    among Digital Recorders, Inc. and the investors named therein
    (incorporated herein by reference to the Companys Report
    on
    Form 8-K,
    filed with the SEC on April 22, 2004)10
.15

Securities Purchase Agreement, dated October 5, 2004,
    between the Company and Riverview Group LLC (incorporated herein
    by reference to the Companys Report on
    Form 8-K,
    filed with the SEC on October 7, 2004)10
.16

Registration Rights Agreement, dated October 5, 2004,
    between the Company and Riverview Group LLC (incorporated herein
    by reference to the Companys Report on
    Form 8-K,
    filed with the SEC on October 7, 2004)10
.17

Share Purchase Agreement, dated June 23, 2005, by and
    between the Company and Dolphin Offshore Partners, L.P.
    (incorporated herein by reference to the Companys Report
    on
    Form 8-K,
    filed on June 28, 2005)10
.18

Registration Rights Agreement, dated June 23, 2005, by and
    between the company and Dolphin Offshore Partners, L.P.
    (incorporated herein by reference to the Companys Report
    on
    Form 8-K,
    filed on June 28, 2005)10
.19

Promissory Note, dated July 25, 2005, between the Company
    to Roth Capital Partners, LLC (incorporated herein by reference
    to the Companys quarterly report on
    Form 10-Q
    for the quarter ended March 31, 2004)10
.20

Share Purchase Agreement, dated October 31, 2005, between
    John D. Higgins and the Company (incorporated herein by
    reference to the Companys Report on
    Form 8-K,
    filed on November 4, 2005)10
.21

Form of Registration Rights Agreement between John D. Higgins
    and the Company (incorporated herein by reference to the
    Companys Report on
    Form 8-K
    filed on November 4, 2005)10
.22

Form of Certificate of Designation of Series H Convertible
    Preferred Stock (incorporated herein by reference to the
    Companys Report on
    Form 8-K
    filed on November 4, 2005)10
.23

Secured Non-Convertible Revolving Note between the Company and
    Laurus Master Fund, Ltd., dated March 15, 2006
    (incorporated herein by reference to the Companys Report
    on
    Form 8-K
    filed on March 21, 2006)10
.24

Security Agreement (with Schedules) between the Company and
    Laurus Master Fund, Ltd. dated March 15, 2006 (incorporated
    herein by reference to the Companys Report on
    Form 8-K
    filed on March 21, 2006)10
.25

Grant of Security Interest in Patents and Trademarks (with
    Schedules) between the Company and Laurus Master Fund, Ltd.,
    dated March 15, 2006 (incorporated herein by reference to
    the Companys Report on
    Form 8-K
    filed on March 21, 2006)10
.26

Stock Pledge Agreement (with Schedules) between the Company and
    Laurus Master Fund, Ltd., dated March 15, 2006
    (incorporated herein by reference to the Companys Report
    on
    Form 8-K
    filed on March 21, 2006)10
.27

Registration Rights Agreement between the Company and Laurus
    Master Fund, Ltd., dated March 15, 2006 (incorporated
    herein by reference to the Companys Report on
    Form 8-K
    filed on March 21, 2006)10
.27.1

Amended and Restated Registration Rights Agreement dated as of
    April 28, 2006, by and between Digital Recorders, Inc. and
    Laurus Master Fund, Ltd., dated (incorporated herein by
    reference to the Companys Report on
    Form 8-K
    filed on May 4, 2006) 90




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##### Table of Contents



ExhibitNo.

Document10
.28

Share Purchase Agreement between the Company and Transit Vehicle
    Technology Investments, Inc., dated March 21, 2006
    (incorporated herein by reference to the Companys Report
    on
    Form 8-K
    filed on March 23, 2006)10
.29

Registration Rights Agreement Between the Company and Transit
    Vehicle Technology Investments, Inc., dated March 21, 2006
    (incorporated herein by reference to the Companys Report
    on
    Form 8-K
    filed on March 23, 2006)10
.30

Securities Purchase Agreement dated as of April 28, 2006,
    by and between Digital Recorders, Inc., TwinVision of North
    America, Inc., Digital Audio Corporation, and Robinson-Turney
    International, Inc., and Laurus Master Fund, Ltd. (incorporated
    herein by reference to the Companys Report on
    Form 8-K
    filed on May 4, 2006)10
.30.1

Waiver and Consent, dated as of April 30, 2007, entered
    into by and between Digital Recorders, Inc., TwinVision of North
    America, Inc., Digital Audio Corporation, Robinson-Turney
    International, Inc. and Laurus Master Fund, Ltd. (incorporated
    herein by reference to the Companys Report on
    Form 10-Q
    for the quarter ended March 31, 2007)10
.31

Secured Term Note by Digital Recorders, Inc., TwinVision of
    North America, Inc., Digital Audio Corporation, and
    Robinson-Turney International, Inc., issued to Laurus Master
    Fund, Ltd., in the original principal amount of $1,600,000
    (incorporated herein by reference to the Companys Report
    on
    Form 8-K
    filed on May 4, 2006.)10
.32

Share Purchase Agreement, dated as of April 30, 2007,
    entered into by and among Dolphin Direct Equity Partners, LP,
    Digital Audio Corporation and Digital Recorders, Inc.
    (incorporated herein by reference to the Companys Report
    on
    Form 10-Q
    for the quarter ended March 31, 2007)10
.33

Promissory Note, dated April 30, 2007, by Dolphin Direct
    Equity Partners, LP issued to Digital Recorders, Inc. in the
    principal sum of $285,000 (incorporated herein by reference to
    the Companys Report on
    Form 10-Q
    for the quarter ended June 30, 2007)10
.34

Form of Share Purchase Agreement, dated June 11, 2007,
    between Digital Recorders, Inc. and buyer of Series J
    Convertible Preferred Stock of Digital Recorders, Inc. with
    Schedule of Differences (incorporated herein by reference to the
    Companys Report on
    Form 10-Q
    for the quarter ended June 30, 2007)10
.35

Form of Registration Rights Agreement, dated June 11, 2007,
    between Digital Recorders, Inc. and holder of Series J
    Convertible Preferred Stock of Digital Recorders, Inc.
    (incorporated herein by reference to the Companys Report
    on
    Form 10-Q
    for the quarter ended June 30, 2007)10
.36

Agreement, dated as of June 30, 2008, by and between the
    Company and John D. Higgins (incorporated herein by reference to
    the Companys Report on
    Form 8-K/A,
    filed with the SEC on August 14, 2008)10
.37

Revolving Credit and Security Agreement, dated as of
    June 30, 2008, by and among PNC Bank, National Association
    and Digital Recorders, Inc., TwinVision of North America, Inc.
    and DRI Corporation (incorporated herein by reference to the
    Companys Report on
    Form 8-K/A,
    filed with the SEC on August 14, 2008)10
.37.1

Amendment No. 2 to Revolving Credit and Security Agreement,
    dated September 29, 2008, by and between Digital Recorders,
    Inc., TwinVision of North America, Inc. and DRI Corporation, and
    PNC Bank, National Association (incorporated by reference to the
    Companys Report on
    Form 10-Q
    for the quarter ended September 30, 2008)10
.37.2

Amendment No. 3 to Revolving Credit and Security Agreement,
    dated as of March 26, 2009, by and between Digital
    Recorders, Inc., TwinVision of North America, Inc. and DRI
    Corporation, and PNC Bank, National Association (incorporated
    herein by reference to the Companys Report on
    Form 10-K
    filed with the SEC on March 31, 2009)10
.37.3

Amendment No. 4 to Revolving Credit and Security Agreement,
    dated as of July 30, 2009, by and between Digital
    Recorders, Inc., TwinVision of North America, Inc., and DRI
    Corporation, and PNC Bank, National Association (incorporated
    herein by reference to the Companys Report on
    Form 8-K
    filed with the SEC on August 5, 2009) 91




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##### Table of Contents



ExhibitNo.

Document10
.37.4

Amendment No. 5 to Revolving Credit and Security Agreement,
    dated as of October 5, 2009, by and among Digital
    Recorders, Inc., TwinVision of North America, Inc., and DRI
    Corporation, and PNC Bank, National Association (incorporated
    herein by reference to the Companys Report on
    Form 10-Q
    for the quarter ended September 30, 200910
.37.5

Amendment No. 6 to Revolving Credit and Security Agreement,
    dated as of December 29, 2009, by and among Digital
    Recorders, Inc., TwinVision of North America, Inc., and DRI
    Corporation, and PNC Bank, National Association (filed herewith)10
.38

Revolving Credit Note, dated as of June 30, 2008, issued by
    Digital Recorders, Inc., TwinVision of North America, Inc. and
    DRI Corporation to PNC Bank, National Association (incorporated
    herein by reference to the Companys Report on
    Form 8-K/A,
    filed with the SEC on August 14, 2008)10
.39

Loan and Security Agreement, dated as of June 30, 2008, by
    and among Digital Recorders, Inc., TwinVision of North America,
    Inc. and DRI Corporation, and BHC Interim Funding III, L.P.
    (incorporated herein by reference to the Companys Report
    on
    Form 8-K/A,
    filed with the SEC on August 14, 2008)10
.39.1

First Amendment to the Loan and Security Agreement, dated as of
    July 30, 2008, by and among Digital Recorders, Inc.,
    TwinVision of North America, Inc. and DRI Corporation, and BHC
    Interim Funding III, L.P. (incorporated herein by reference to
    the Companys Report on
    Form 8-K/A,
    filed with the SEC on August 14, 2008)10
.39.2

Second Amendment to the Loan and Security Agreement, dated as of
    March 26, 2009, by and among Digital Recorders, Inc.,
    TwinVision of North America, Inc. and DRI Corporation, and BHC
    Interim Funding III, L.P. (incorporated herein by reference to
    the Companys Report on
    Form 10-K
    filed with the SEC on March 31, 2009)10
.39.3

Letter Agreement, dated as of July 21, 2009, by and among
    Digital Recorders, Inc. and TwinVision of North America, Inc.,
    as Borrowers, DRI Corporation, as Guarantor, and BHC Interim
    Funding III, L.P. (incorporated herein by reference to the
    Companys Report on
    Form 10-Q
    for the quarter ended June 30, 2009)10
.39.3.1

Letter of Amendment to Letter Agreement, dated as of
    July 31, 2009, by and among Digital Recorders, Inc. and
    TwinVision of North America, Inc., as Borrowers, DRI
    Corporation, as Guarantor, and BHC Interim Funding III, L.P., as
    Lender (incorporated herein by reference to the Companys
    Report on
    Form 10-Q
    for the quarter ended June 30, 2009)10
.39.4

Third Amendment to Loan and Security Agreement, dated as of
    August 18, 2009, by and among Digital Recorders, Inc. and
    TwinVision of North America, Inc., as Borrowers, DRI
    Corporation, as Guarantor, and BHC Interim Funding III, L.P., as
    Lender (incorporated herein by reference to the Companys
    Report on
    Form 10-Q
    for the quarter ended June 30, 2009)10
.39.5

Letter of Amendment to Loan and Security Agreement, dated as of
    August 18, 2009, by and between DRI Corporation and BHC
    Interim Funding III, L.P. (incorporated herein by reference to
    the Companys Report on From
    8-K filed
    with the SEC on August 24, 200910
.39.6

Fourth Amendment Loan and Security Agreement, dated as of
    October 1, 2009, by and among Digital Recorders, Inc., and
    TwinVision of North America, Inc., as Borrowers, DRI
    Corporation, as Guarantor, and BHC Interim Funding III, L.P., as
    Lender (incorporated herein by reference to the Companys
    Report on
    Form 10-Q
    for the quarter ended September 30, 2009)10
.39.7

Fifth Amendment to Loan and Security Agreement, dated as of
    December 29, 2009, by and among Digital Recorders, Inc.,
    and TwinVision of North America, Inc., as Borrowers, DRI
    Corporation, as Guarantor, and BHC Interim Funding III, L.P. as
    Lender (filed herewith)10
.40

Senior Secured Term Note, dated as of June 30, 2008, issued
    by Digital Recorders, Inc. and TwinVision of North America, Inc.
    to BHC Interim Funding III, L.P. (incorporated herein by
    reference to the Companys Report on
    Form 8-K/A,
    filed with the SEC on August 14, 2008)10
.41

Continuing Unconditional Guaranty, dated as of June 30,
    2008, granted by the Company in favor of BHC Interim Funding
    III, L.P. (incorporated herein by reference to the
    Companys Report on
    Form 8-K/A,
    filed with the SEC on August 14, 2008) 92




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##### Table of Contents



ExhibitNo.

Document10
.42

Stock Pledge Agreement, dated as of June 30, 2008, by and
    between the Company and BHC Interim Funding III, L.P.
    (incorporated herein by reference to the Companys Report
    on
    Form 8-K/A,
    filed with the SEC on August 14, 2008)10
.43

Trademark Security Agreement, dated as of June 30, 2008, by
    and between the Company and BHC Interim Funding III, L.P.
    (incorporated herein by reference to the Companys Report
    on
    Form 8-K/A,
    filed with the SEC on August 14, 2008)10
.44

Trademark Security Agreement, dated as of June 30, 2008, by
    and between Digital Recorders, Inc. and BHC Interim Funding III,
    L.P. (incorporated herein by reference to the Companys
    Report on
    Form 8-K/A,
    filed with the SEC on August 14, 2008)10
.45

Trademark and Security Agreement, dated as of June 30,
    2008, by and between TwinVision of North America, Inc. and BHC
    Interim Funding III, L.P. (incorporated herein by reference to
    the Companys Report on
    Form 8-K/A,
    filed with the SEC on August 14, 2008)10
.46

Copyright Security Agreement, dated as of June 30, 2008, by
    and between Digital Recorders, Inc. and BHC Interim Funding III,
    L.P. (incorporated herein by reference to the Companys
    Report on
    Form 8-K/A,
    filed with the SEC on August 14, 2008)10
.47

Copyright Security Agreement, dated as of June 30, 2008, by
    and between TwinVision of North America, Inc. and BHC Interim
    Funding III, L.P. (incorporated herein by reference to the
    Companys Report on
    Form 8-K/A,
    filed with the SEC on August 14, 2008)10
.48

Patent Security Agreement, dated as of June 30, 2008, by
    and between Digital Recorders, Inc. and BHC Interim Funding III,
    L.P. (incorporated herein by reference to the Companys
    Report on
    Form 8-K/A,
    filed with the SEC on August 14, 2008)10
.49

Undertaking Concerning Loan Payment for purposes other than
    personal consumption, by and between Handelsbanken and Mobitec
    AB (English translation) (incorporated herein by reference to
    the Companys Report on
    Form 8-K/A,
    filed with the SEC on August 14, 2008)10
.49.1

Undertaking Concerning Loan Payment for purposes other than
    personal consumption, dated June 16, 2009, by and between
    Handelsbanken and Mobitec AB (English translation) (incorporated
    herein by reference to the Companys Report on
    Form 10-Q
    for the quarter ended June 30, 2009)10
.49.2

Undertaking Concerning Loan Payment for purposes other than
    personal consumption, dated June 16, 2009, by and between
    Handelsbanken and Mobitec AB (English translation) (incorporated
    herein by reference to the Companys Report on
    Form 10-Q
    for the quarter ended June 30, 2009)10
.49.3

Undertaking Concerning Loan Payment for purposes other than
    personal consumption, dated March 25, 2010, by and between
    Handelsbanken and Mobitec AB (English translation) (filed
    herewith)10
.50

Instrument for Debt A Loan for purposes other than personal
    consumption, by and between Handelsbanken and Mobitec AB
    (English translation) (incorporated herein by reference to the
    Companys Report on
    Form 8-K/A,
    filed with the SEC on August 14, 2008)10
.51

Factoring Agreement by and between Handelsbanken and Mobitec AB
    (English translation) (incorporated herein by reference to the
    Companys Report on
    Form 8-K/A,
    filed with the SEC on August 14, 2008)10
.52

EURO Short Term Loan Facility by and between Handelsbanken and
    Mobitec GmbH (incorporated herein by reference to the
    Companys Report on
    Form 8-K/A,
    filed with the SEC on August 14, 2008)10
.52.1

EURO Short Term Loan Facility by and between Handelsbanken and
    Mobitec GmbH, dated as of June 25, 2009 (incorporated
    herein by reference to the Companys Report on
    Form 8-K
    filed with the SEC on July 1, 2009)10
.53

Executive Employment Agreement, dated January 1, 1999,
    between the Company and Larry Hagemann (incorporated herein by
    reference from the Companys Proxy Statement for the Annual
    Meeting of Shareholders for fiscal year 2000, filed with the SEC
    on June 6, 2001)10
.54

Executive Employment Agreement, between the Company and David N.
    Pilotte, dated October 25, 2004 (incorporated herein by
    reference to the Companys Report on
    Form 8-K,
    filed with the SEC on October 22, 2004) 93




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##### Table of Contents



ExhibitNo.

Document10
.55

Executive Employment Agreement, dated November 15, 2007,
    between Mobitec GmbH and Mobitec AB and Oliver Wels
    (incorporated herein by reference from the Companys Report
    on
    Form 10-Q
    for the quarter ended March 31, 2008)10
.56

Executive Employment Agreement, dated December 31, 2007,
    between the Company and Lawrence A. Hagemann (incorporated
    herein by reference from the Companys Report on
    Form 8-K,
    filed with the SEC on January 10, 2008)10
.57

Executive Employment Agreement, dated December 31, 2007,
    between the Company and Stephen P. Slay (incorporated herein by
    reference from the Companys Report on
    Form 8-K,
    filed with the SEC on January 10, 2008)10
.58

Executive Employment Agreement, dated December 31, 2007,
    between the Company and Rob R. Taylor (incorporated herein by
    reference from the Companys Report on
    Form 8-K,
    filed with the SEC on January 10, 2008)10
.59

Executive Employment Agreement, effective December 31,
    2007, between the Company and Tanya Lind Johnson (incorporated
    herein by reference from the Companys Report on
    Form 8-K,
    filed with the SEC on January 18, 2008)10
.60

Executive Employment Agreement, effective December 31,
    2007, between the Company and William F. Fay, Jr. (incorporated
    herein by reference from the Companys Report on
    Form 8-K,
    filed with the SEC on January 18, 2008)10
.61

Executive Employment Agreement, effective January 1, 2008,
    between the Company and David L. Turney (incorporated herein by
    reference from the Companys Report on
    Form 8-K,
    filed with the SEC on January 18, 2008)10
.62

Extension Agreement, dated as of April 30, 2008 by and
    between DRI Corporation and Digital Audio Corporation
    (incorporated herein by reference from the Companys Report
    on
    Form 8-K,
    filed with the SEC on May 6, 2008)10
.62.1

Second Extension Agreement, dated as of April 30, 2009, by
    and between DRI Corporation and Digital Audio Corporation
    (incorporated herein by reference to the Companys Report
    on
    Form 8-K
    filed with the SEC on May 6, 2009)10
.63

General Pledging, dated June 16, 2009, by and between
    Handelsbanken and Mobitec AB (English translation) (incorporated
    herein by reference to the Companys Report on
    Form 10-Q
    for the quarter ended June 30, 2009)10
.64

Contract A Supplementary Overdraft Facility for purposes other
    than personal consumption, dated June 16, 2009, by and
    between Handelsbanken and Mobitec AB (English translation)
    (incorporated herein by reference to the Companys Report
    on
    Form 10-Q
    for the quarter ended June 30, 2009)10
.64.1

Contract A Supplementary Overdraft Facility for purposes other
    than personal consumption, dated March 25, 2010, by and
    between Handelsbanken and Mobitec AB (English translation)
    (filed herewith)10
.65

Quota Purchase Agreement, dated as of July 22, 2009, by and
    among Mobitec AB, Mobitec Empreendimientos e
    Participações Ltda., Mobitec Brasil Ltda, Roberto
    Juventino Demore, Lorena Giusti Demore, and JADI
    Itinerários Eletrônicos Ltda (incorporated herein by
    reference to the Companys Report on
    Form 10-Q
    for the quarter ended June 30, 2009) (confidential
    treatment requested for specific portions of this agreement)10
.65.1

First Amendment to Quota Purchase Agreement, dated as of
    August 31, 2009, by and among Mobitec Empreendimientos e
    Participações Ltda., Roberto Juventino Demore, Lorena
    Giusti Demore, JADI Itinerários Eletrônicos Ltda,
    Mobitec AB and Mobitec Brasil Ltda. (incorporated herein by
    reference to the Companys Report on
    Form 10-Q
    for the quarter ended September 30, 2009) (confidential
    treatment requested for specific portions of this agreement)10
.66

Promissory Note, dated July 22, 2009, by Mobitec
    Empreendimientos e Participações Ltda., as Maker, and
    Mobitec AB, as Guarantor, issued to Roberto Juventino Demore and
    Lorena Giusti Demore, in the principal amount of $1,000,000
    (English translation) (incorporated herein by reference to the
    Companys Report on
    Form 10-Q
    for the quarter ended June 30, 2009) (confidential
    treatment requested for specific portions of this agreement) 94




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##### Table of Contents



ExhibitNo.

Document10
.66.1

Promissory Note, dated August 31, 2009, by Mobitec
    Empreendimientos e Participações Ltda., as Maker,
    issued to Roberto Juventino Demore in the principal amount of
    $1,000,000 (incorporated herein by reference to the
    Companys Report on
    Form 10-Q
    for the quarter ended September 30, 2009) (confidential
    treatment requested for specific portions of this agreement)10
.67

Promissory Note, dated July 22, 2009, by Mobitec AB issued
    to Roberto Juventino Demore and Lorena Giusti Demore, in the
    principal amount of $1,950,000 (incorporated herein by reference
    to the Companys Report on
    Form 10-Q
    for the quarter ended June 30, 2009) (confidential
    treatment requested for specific portions of this agreement)10
.67.1

Promissory Note, dated August 31, 2009, by Mobitec AB,
    issued to Roberto Juventino Demore in the principal amount of
    $1,950,000 (incorporated herein by reference to the
    Companys Report on
    Form 10-Q
    for the quarter ended September 30, 2009) (confidential
    treatment requested for specific portions of this agreement)10
.68

Form of Subscription Agreement, by and between DRI Corporation
    and holder of Series K Senior Convertible Preferred Stock
    of DRI Corporation (incorporated herein by reference to the
    Companys Report on
    Form 8-K
    filed with the SEC on October 30, 2009)10
.68.1

Form of Subscription Agreement by and between DRI Corporation
    and holder of Series K Senior Convertible Preferred Stock
    of DRI Corporation (filed herewith)10
.69

Form of Registration Rights Agreement by and between DRI
    Corporation and holder of Series K Senior Convertible
    Preferred Stock of DRI Corporation (incorporated herein by
    reference to the Companys Report on
    Form 8-K
    filed with the SEC on October 30, 2009)10
.69.1

Form of Registration Rights Agreement by and between DRI
    Corporation and holder of Series K Senior Convertible
    Preferred Stock of DRI Corporation (filed herewith)21
.1

Listing of Subsidiaries of the Company (filed herewith)23
.1

Consent of Grant Thornton LLP (filed herewith)23
.2

Consent of PricewaterhouseCoopers LLP (filed herewith)31
.1

Section 302 Certification of David L. Turney (filed
    herewith)31
.2

Section 302 Certification of Stephen P. Slay (filed
    herewith)32
.1

Section 906 Certification of David L. Turney (filed
    herewith)32
.2

Section 906 Certification of Stephen P. Slay (filed
    herewith)  95




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##### Table of Contents



SIGNATURES      By:
    /s/  DAVID
    L. TURNEY   Chairman of the Board, Chief Executive
 Officer and President (Principal Executive Officer)
    Pursuant to the requirements of the Securities Exchange Act
    of 1934, this report has been signed below by the following
    persons on behalf of the registrant and in the capacities and on
    the dates indicated.
  Signature

Title

Date/s/  DAVID
    L. TURNEYDavid
    L. Turney

Chairman of the Board, President and Chief Executive Officer
    (Principal Executive Officer)

April 15, 2010/s/  STEPHEN
    P. SLAYStephen
    P. Slay

Vice President, Chief Financial Officer, Treasurer and
    Secretary
    (Principal Financial and Accounting Officer)

April 15, 2010/s/  HUELON
    ANDREW HARRISONHuelon
    Andrew Harrison

Director

April 15, 2010/s/  JOHN
    D. HIGGINSJohn
    D. Higgins

Director

April 15, 2010/s/  HELGA
    HOUSTONHelga
    Houston

Director

April 15, 2010/s/  C.
    JAMES MEESE JR.C.
    James Meese Jr.

Director

April 15, 2010/s/  STEPHANIE
    L. PINSONStephanie
    L. Pinson

Director

April 15, 2010/s/  JOHN
    K. PIROTTEJohn
    K. Pirotte

Director

April 15, 2010/s/  JULIANN
    TENNEYJuliann
    Tenney

Director

April 15, 2010  96